Oil Prices Drop to Lowest Level on OPEC Tariffs, Supply Impact
Oil prices plunged for a second day, falling to their lowest in more than three years as traders digested a surprise output increase by OPEC+ and a rapidly escalating global trade war.
Brent benchmark prices have fallen more than 10% in two days, while U.S. crude futures are also trading at their lowest since 2021. The declines come amid a broad decline across global markets, including commodities ranging from gas to grains.
The oil price slump was triggered on Thursday by a spate of tariffs from U.S. President Donald Trump, threatening global economic growth and consumption. Hours later, OPEC+ doubled its planned output increase for May, in what delegates called a deliberate attempt to drive down prices to punish members that pump more than their quotas.
Crude prices extended losses on Friday after the official Xinhua News Agency reported that China had imposed 34% tariffs on all U.S. imports in retaliation. The decline marked a fresh attempt to break out of a six-month trading range of $15. During that period, OPEC+ supply restraints were seen as a floor for the market, while the group’s sizable spare capacity acted as a ceiling. This week’s unexpected production increase raises questions about whether the alliance will continue to sustain higher prices.
The double whammy of OPEC+ and tariffs has prompted Wall Street traders and banks to reassess their outlooks for the market. Goldman Sachs Group Inc. and ING Groep NV were among those to lower their price forecasts, citing risks to demand and higher supply from the producer group.
“The two main downside risks we have flagged are materializing: tariff escalation and slightly higher OPEC+ supply,” Goldman analysts including Daan Struyven wrote in a note. “Price volatility is likely to remain elevated on higher recessionary risks.”
The downgrades have also had a broader impact on key market gauges. Time frames have weakened in a sign of looser balance expectations, particularly across the futures curve. At the same time, bearish oil option volumes have surged to their highest levels on record.
Broader supply risks, however, remain. The Trump administration has threatened a maximum pressure policy on oil-producing countries targeted by U.S. sanctions, including Iran and Venezuela. Any price declines offer a greater opportunity to curb production in those countries without sending prices into inflation.
“With the potential for supply disruptions from sanctions and tariffs — both on sellers and buyers — oil is unlikely to stay below $70 for long,” said Mukesh Sahdev, head of global commodity markets at Rystad Energy.
Brent for June settlement fell as much as 6.8% to $65.36 a barrel, the lowest since December 2021, and was trading down 5.8% at $66.07 a barrel at 11:49 a.m. in London. On Thursday, Brent fell the most since 2022.
West Texas Intermediate crude for May delivery fell 6.2% to $62.80 a barrel.
Source: Bloomberg
