Oil Drops 4% as the US Imposes 104% Tariffs on China

SINGAPORE/BEIJING: Oil prices fell to their lowest levels in over four years on Wednesday due to concerns about demand, driven by an intensifying tariff conflict between the U.S. and China, the two largest economies globally, along with an increasing supply forecast. Brent futures declined by $2.38, or 3.79 per cent, reaching $60.44 a barrel as of 0423 GMT. U.S. West Texas Intermediate crude futures dropped $2.46, or 4.13 per cent, reaching $57.12. Both contracts reached their lowest point since February 2021. 

The six-month spread for Brent fell to 79 cents, marking its lowest point since mid-November, as the market appeared to be heading towards a possible surplus. The spread has fallen 86  per cent from a peak of $5.69 on January 15, which indicated reduced supply and anticipated a resurgence in Chinese demand. Both Brent and WTI have plummeted over five consecutive sessions since U.S. President Donald Trump announced extensive tariffs on most imports, raising concerns that a global trade war could hinder economic growth and impact fuel demand.

Oil Falls Amid Tariff Tensions

President Donald Trump's 104 per cent tariffs on China took effect starting at 12:01 a.m. EDT (0401 GMT) on Wednesday, increasing tariffs by 50 per cent more after Beijing did not remove its retaliatory tariffs on U.S. products by the noon deadline on Tuesday established by Trump. Beijing pledged to resist what it termed U.S. intimidation after Trump warned of a further 50 per cent tariff on Chinese imports if China did not remove its 34 per cent counter-tariff. "China's forceful response reduces the likelihood of a swift agreement between the world's largest economies, escalating concerns of a global economic recession," stated Ye Lin, vice president of oil commodity markets at Rystad Energy.

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"The growth of China’s oil demand, ranging from 50,000 bpd to 100,000 bpd, is jeopardised if the trade war persists; however, a more robust stimulus aimed at enhancing domestic consumption could alleviate the impacts," she stated. Compounding the drop in oil was a decision made last week by OPEC+, which unites the Organisation of the Petroleum Exporting Countries and its allies, such as Russia, to increase output in May by 411,000 barrels daily, a move analysts predict will likely lead to a market surplus. Goldman Sachs currently predicts that Brent and WTI may decline to $62 and $58 per barrel by December 2025 and to $55 and $51 per barrel by December 2026.

As oil prices dropped, Russia's ESPO Blend oil price declined beneath the $60-per-barrel Western price cap for the first time on Monday. In a favorable signal for demand, information from the American Petroleum Institute indicated that U.S. crude stockpiles decreased by 1.1 million barrels for the week ending April 4, contrasting with predictions in a Reuters survey for an increase of roughly 1.4 million barrels. The official inventory report from the Energy Information Administration is scheduled for release on Wednesday at 10:30 a.m. EDT (1430 GMT).