Oil prices continued their downward spiral for the fifth straight day, marking their lowest levels since February 2021, as a combination of geopolitical tensions and a looming global surplus weighed heavily on the markets. The escalating trade war between the United States and China — the world’s two largest economies — and an increase in supply from oil-producing nations have stirred fears about declining global demand.

Crude Contracts See Steep Declines

As of 0655 GMT, Brent crude futures fell by $1.39, or 2.21%, to $61.43 per barrel, while West Texas Intermediate (WTI) crude futures dropped by $1.50, or 2.52%, to $58.08. Earlier in the session, both contracts had plunged by as much as 4%, highlighting the intense pressure currently facing the oil markets.

This downturn is not an isolated event but part of a five-day slump triggered by President Donald Trump’s announcement of wide-ranging tariffs on most Chinese imports. The move has increased fears of a full-blown global trade war, which in turn is expected to hamper economic growth and reduce fuel consumption worldwide.

Backwardation Narrows as Demand Outlook Weakens

One of the most notable market indicators, the premium on Brent futures for prompt delivery over six-month deliveries, dropped significantly to just 98 cents a barrel, its lowest since mid-November. This premium had been $3.53 per barrel as recently as April 2, prior to the announcement of the new tariffs.

This narrowing backwardation — where immediate delivery prices are higher than future delivery prices — typically reflects a tight supply environment. However, its contraction now suggests investor concerns about oversupply and weakening demand.

Impact of Trump’s Steep Tariffs

The 104% tariffs imposed by the US on Chinese goods took effect at 12:01 a.m. EDT (0401 GMT) on Wednesday. These levies represented a 50% hike on earlier tariffs after Beijing failed to meet Trump’s deadline to lift its 34% retaliatory tariffs.

In response, China vowed not to succumb to what it called US blackmail, signalling that a resolution to the trade conflict is unlikely in the short term. This ongoing battle is deepening economic uncertainty and is widely expected to affect various sectors — including energy consumption and global oil demand.

China’s Oil Demand at Risk

Ye Lin, vice president of oil commodity markets at Rystad Energy, warned that China’s oil demand growth of 50,000 to 100,000 barrels per day (bpd) is now at significant risk if the trade war drags on. While Beijing may launch economic stimulus measures to offset some of the damage, analysts believe it may not be enough to maintain the current levels of growth.

OPEC+ Output Hike Adds More Pressure

Adding to the bearish outlook is the recent decision by OPEC+ — a coalition of the Organization of the Petroleum Exporting Countries (OPEC) and allied producers like Russia — to increase production in May by 411,000 barrels per day.

This move comes at a time when demand concerns are already prominent, potentially pushing the oil market into a supply surplus. Many market participants were hoping that the group would hold production steady or even consider cuts to support prices amid global uncertainty.

Goldman Sachs Cuts Price Forecasts

Reflecting the new realities of the market, Goldman Sachs has slashed its projections for oil prices. The bank now expects:

• Brent crude to average $62 per barrel by December 2025, and

• Drop further to $55 per barrel by December 2026.

• WTI crude is forecasted to reach $58 per barrel by the end of 2025 and

• Dip to $51 per barrel by December 2026.

These revised projections underscore the bank’s growing pessimism about long-term demand and the global economy.

ESPO Blend Falls Below Price Cap

Another indication of weakening global oil dynamics was observed in Russia's ESPO Blend oil, which fell below the $60 per barrel Western price cap for the first time ever on Monday. This marks a significant milestone and further illustrates the mounting pressures on oil exporters amid falling prices and limited bargaining power.

U.S. Inventory Data Offers Slight Relief

In contrast to the overarching bearish narrative, some positive data did emerge. The American Petroleum Institute (API) reported that U.S. crude inventories fell by 1.1 million barrels for the week ending April 4. This was in stark contrast to expectations of a 1.4 million barrel build, as projected by a Reuters poll.

Although this inventory drop offers a short-term sign of demand, experts caution that a single week’s data is unlikely to reverse the broader downtrend driven by macroeconomic factors and geopolitical risks.

Summary

In conclusion, the global oil market is facing a confluence of adverse factors. The escalating US-China trade war, rising oil supply from OPEC+, and slowing economic activity across the globe are leading to a sharp decline in oil prices. Investors are particularly worried that prolonged trade tensions could tip the global economy into a recession, significantly curbing demand for crude.

Despite a temporary fall in U.S. crude inventories, the broader outlook remains pessimistic, with Goldman Sachs lowering its long-term forecasts and indicators like Brent backwardation narrowing sharply. Unless a diplomatic breakthrough or unexpected demand surge occurs, the oil market may continue to face bearish pressure in the coming months.

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