Oil prices extended their decline on Wednesday, positioning themselves for the largest monthly drop in over three years as the ongoing global trade war diminished the outlook for fuel demand, compounded by concerns over increasing supply.
Brent crude futures – now standing at $62.50 – fell by 72 cents, or 1.12 percent, to $63.53 per barrel by 04:04 GMT. Meanwhile, U.S. West Texas Intermediate crude futures dropped 70 cents, or 1.16 percent, to $59.71 a barrel. U.S. WTI is currently priced at $59.58. Brent and WTI have both lost 15 percent and 16 percent respectively this month, marking the biggest percentage drop since November 2021.
Both benchmarks declined sharply following U.S. President Donald Trump’s April 2 announcement of tariffs on all U.S. imports. The situation worsened when China retaliated with its own levies against U.S. imports, escalating a trade war between the two largest oil-consuming nations. According to a Reuters poll, Trump’s tariffs have increased the likelihood of a global economic recession this year.
Concerns over demand and economic sentiment
China’s factory activity contracted at the fastest pace in 16 months in April, according to a factory survey released on Wednesday. Investor sentiment has been notably affected by worries about demand amid the trade war, Reuters reported, citing a note by ANZ bank senior commodity strategist Daniel Hynes. He stated, “There are also concerns that recent strength in U.S. economic data was only temporary, due to stockpiling ahead of the tariffs that now appears to be abating.”
U.S. consumer confidence also plummeted to a nearly five-year low in April due to escalating tariff concerns, as reported on Tuesday.
Mixed signals from trade negotiations
Recent indications of a potential de-escalation in trade tensions, including a pair of executive orders signed by Trump on Tuesday aimed at softening the impact of his auto tariffs, have somewhat calmed global investors. However, analysts still predict that the oil market will remain under pressure as the Trump administration continues to focus on lowering oil prices to manage inflation.
Supply concerns from OPEC+
Further undermining oil prices are fears of increasing supply from the Organization of the Petroleum Exporting Countries and their allies, collectively known as OPEC+. Sources indicated that several OPEC+ members are likely to propose a further increase in output for a second consecutive month in June. The group is scheduled to meet on May 5 to discuss their output plans.
On the supply front, U.S. crude oil inventories rose by 3.8 million barrels last week, as reported by market sources on Tuesday, citing data from the American Petroleum Institute. U.S. government data on stockpiles is expected at 10:30 a.m. ET (1430 GMT) on Wednesday, with analysts polled by Reuters anticipating an average increase of 400,000 barrels in U.S. crude oil stocks for the previous week.
Adjustments to demand growth expectations
Crude oil prices fell on Tuesday as investors adjusted their expectations for demand growth amid the ongoing trade war between the United States and China, the world’s two largest economies. Brent crude futures decreased by 43 cents, or 0.7 percent, to $65.41 per barrel by 04:00 GMT, while U.S. West Texas Intermediate crude futures fell by 40 cents, or 0.6 percent, to $61.65 a barrel. Both benchmarks had already seen declines of more than $1 on Monday.
Market monitoring of trade negotiations
“Markets are closely monitoring the U.S.-China trade negotiations, understanding that deteriorating trade relations between the world’s two largest economies could lead the global economy towards a recession,” reported Reuters, quoting Priyanka Sachdeva, senior market analyst at Phillip Nova. She added, “The lack of confidence in future demand and the absence of concrete signals for demand revival in mainland China will continue to overshadow oil prices.”
China, facing the brunt of those tariffs, has retaliated with its own levies against U.S. imports, intensifying the trade war. Analysts have significantly lowered their forecasts for oil demand and prices as a result. Barclays, for instance, revised its 2025 Brent crude price forecast downward by $4 to $70 a barrel, citing heightened trade tensions and a shift in production strategy by the OPEC+ group, projected to create a 1 million barrel per day oil supply surplus this year.
