Crude oil plunged to four-year lows on trade war escalation

Crude oil prices fell sharply on Wednesday along with global financial markets as US President Donald Trump’s country-specific tariffs came into force.

Those tariffs included a projected 104% levy on Chinese imports, while US customs authorities will begin imposing new tariffs on imports from 86 countries shortly after midnight on Wednesday. (Source: https://www.reuters.com )

The S&P 500 was inches away from a bear market and has been under pressure in recent days from the worst selling since the outbreak of the pandemic in 2020.

Recent developments have heightened fears that an escalating tariff war between the US and China, the world’s two largest economies, would dampen economic growth and hurt demand for petroleum products.

The escalation of the trade war and the decision by OPEC+ to bring more barrels back on the market have created a “toxic cocktail” of recession fears, causing the price of Brent crude to retest the key support level of $60/b for the first time since March 2021.

The price of US-based WTI crude oil also fell sharply, dropping as low as $56/b, its lowest level since February 2021, amid rising geopolitical and trade tensions.

The underperformance of growth-oriented crude was partly caused by recession worries in the face of tariffs, as both Brent and WTI oil prices have fallen more than 15% since last Wednesday when Trump announced the new round of import tariffs.

The U.S. administration imposed a 104% tariff on China on Wednesday morning, adding 50% more to tariffs after Beijing failed to lift its 34% retaliatory tariffs on U.S. goods by a noon deadline on Tuesday set by Trump.

Adding pressure on the current downtrend momentum of oil prices was a decision last week by OPEC+ to hike output in May by 411,000 barrels per day, a move that is expected to push the global oil market into surplus. (Source: https://www.reuters.com).