Oil prices dropped sharply to an over four-year low on Wednesday as signs of a rapidly escalating U.S.-China trade war raised significant concerns about a potential recession and weakened demand.
Oil resumed its downward trajectory after experiencing a brief respite in the previous session, as traders hoped that U.S. President Donald Trump would make concessions in his tariff agenda to facilitate negotiations, particularly with China. However, on Tuesday evening, Trump signed an executive order increasing his planned tariffs on China by 50 percent, marking a serious escalation in tensions with the world’s largest oil importer.
Brent and WTI prices decline significantly
Brent oil futures expiring in June fell 3.8 percent to $60.46 a barrel, while West Texas Intermediate crude futures dropped 4.1 percent to $56.69 a barrel by 20:53 ET (00:53 GMT). Despite industry data showing a slight draw in U.S. crude inventories, oil prices received little support.
Trump hikes China tariffs to 104 percent
Trump’s latest order raises U.S. tariffs on China to a cumulative 104 percent, significantly higher than the 60 percent worst-case scenario he threatened during his presidential campaign. These tariffs are anticipated to negatively impact China’s economy, potentially diminishing the country’s demand for oil imports. Furthermore, China is likely to escalate its retaliation against the U.S. after imposing 34 percent tariffs on American goods last week.
Read more: Stocks slide following Trump’s 104 percent tariffs on China
China’s response and economic impact
Beijing has maintained a strong rhetoric against Trump’s tariffs, vowing to “fight till the end.” In response to the tariffs, China is also expected to enhance its stimulus efforts to mitigate the impact. Beyond the implications for China, oil markets are increasingly uneasy about the broader economic effects of Trump’s tariffs, which threaten to disrupt global trade and potentially hinder economic growth. The burden of these tariffs will primarily fall on U.S. importers, a trend that could lead to rising local inflation and undermine growth.
Increased odds for U.S. recession
Several investment banks, brokerages, and betting markets have raised their odds for a U.S. recession in 2025. Such a scenario would have negative consequences for oil demand, further contributing to the downward pressure on prices.
API reports small draw in U.S. inventories
Data from the American Petroleum Institute (API) showed a nearly 1.1 million barrel draw in U.S. inventories over the past week. This draw follows several weeks of remarkable increases in inventories, a trend that had raised concerns about sluggish fuel demand. The API data usually signals a similar outcome in the official inventory report, which is awaited later on Wednesday. Oil inventories had grown by a much larger-than-expected 6.1 million barrels in the previous week.
