Oil prices dropped to their lowest point in four years following a surprise output increase by OPEC+ and escalating global trade tensions. The sharp decline was triggered by U.S. President Donald Trump’s latest round of tariffs, which are raising fears about a potential global economic slowdown and reduced energy demand.
West Texas Intermediate (WTI) crude futures fell approximately 14% in just two days, settling near $61 per barrel. This drop mirrors the steep declines seen during the early stages of the COVID-19 pandemic. Similarly, Brent crude ended the day at its lowest level since 2021. The market’s slide was further exacerbated on Friday when China retaliated against the U.S. tariffs, including a 34% tax on all imports from the U.S., set to take effect within a week. The broader commodities market also suffered as concerns about weaker demand for raw materials grew. Copper, for instance, dropped as much as 7.7%, reaching its lowest level since January, while European natural gas futures fell more than 10%. Shares of major mining companies, including Glencore, BHP Group, and Rio Tinto, also took a hit, with Glencore’s stock plummeting more than 9%.
The sudden drop in oil prices marks a sharp departure from the $15 price range that had dominated trading for the past six months. During this period, OPEC+ supply cuts had provided a floor for the market, while the group’s substantial spare capacity acted as a price ceiling. However, this week’s unexpected production increase by OPEC+ has raised doubts about whether the alliance will continue to defend higher prices. The dual blow of increased supply and escalating tariffs has prompted traders and financial institutions to revise their market forecasts. Goldman Sachs and ING Groep have both lowered their price projections, citing the risk of weaker demand and higher supply from OPEC+ producers.
“The two key downside risks we’ve identified — tariff escalation and higher OPEC+ supply — are now materializing,” said Daan Struyven, an analyst at Goldman Sachs. “Price volatility is likely to stay high due to increasing recession risks,” he added.
The oil market’s retreat is also having a ripple effect on other financial indicators. Market timespreads have softened, suggesting looser oil balances in the future. Additionally, bearish options volumes reached record highs, signaling heightened pessimism about the market’s direction. The relative strength index (RSI) for oil has entered oversold territory, indicating a potential price reversal. Meanwhile, commodity trading advisers, who typically amplify price swings, shifted to a 73% short position in WTI, up from just 9% the previous day. This dramatic shift in positioning is rare and often occurs during major economic downturns, such as the collapse of Silicon Valley Bank in 2023.
Despite the downward pressure on prices, some supply risks persist. The Trump administration has threatened to intensify sanctions on oil-producing countries like Iran and Venezuela. A drop in prices could provide an opportunity to restrict production in these nations without triggering a price spike. Mukesh Sahdev, global head of commodity markets at Rystad Energy, noted that “With potential supply disruptions from sanctions and tariffs, oil prices are unlikely to stay below $70 for long.”