Oil Markets Braced for Turbulence as US-China Trade War Deepens

The WTI crude oil futures market opened sharply lower on Tuesday, with prices slipping 1.5% to near $61 per barrel—the lowest level in over four years—as fresh reports underscored the escalating toll of the US-China trade war on global oil demand. Analysts warn that the prolonged dispute is reshaping the energy landscape, with downward revisions in consumption forecasts, oversupply pressures, and geopolitical risks combining to create a volatile outlook for investors.

The International Energy Agency’s (IEA) April 2025 report highlighted that global oil demand growth for 2025 had been slashed by 300,000 barrels per day (kb/d) to just 730 kb/d, with the US-China trade conflict cited as the primary driver of the downgrade. The trade war’s macroeconomic drag has overshadowed a strong start to the year, as pre-tariff stockpiling in early 2025—a temporary boost to demand—faded by April. “The effect of stockpiling and hoarding is diminishing, and we’re now seeing consumption shift to depleting inventories rather than boosting production,” said Arne Lohmann Rasmussen of A/S Global Risk Management.

The trade tensions have also cast a shadow over US shale production. The Dallas Fed Energy Survey revealed that US shale drillers now require an average of $65 per barrel to profitably drill new wells—a breakeven point that has yet to be reached as prices linger near $61. Compounding the challenge, Chinese tariffs on US ethane and liquefied petroleum gas (LPG) have further dampened US supply growth projections. The IEA now expects US oil output to rise by just 490 kb/d in 2025, down from earlier estimates, as trade-related cost pressures and reduced drilling activity take their toll.

Meanwhile, OPEC+ is adding to the oversupply concerns. Eight member nations, including Kazakhstan and Iraq, have accelerated the reversal of voluntary production cuts, boosting output targets by 411 kb/d in May. However, actual production has already surpassed these targets, with Kazakhstan hitting a record 1.8 million barrels per day (mb/d)—390 kb/d above its quota. This surge has amplified fears of a supply glut, with the IEA warning that Brent crude could face further downside risks, trading near $65 per barrel in April—nearly $10 lower than March levels.

Looking ahead, the trade war’s impact extends beyond 2025. The IEA projects that global oil demand growth will slow to just 690 kb/d in 2026 as economic fragility and electric vehicle (EV) adoption erode consumption. Even as non-OPEC+ supply is expected to grow by 920 kb/d in 2026, the agency cautions that uncertainties over trade negotiations and geopolitical dynamics will keep markets unstable.

Investors must also contend with the ripple effects of China’s refusal to engage in meaningful talks. The nation’s retaliatory tariffs and reluctance to compromise have left the 90-day tariff reprieve—announced in late March—as a largely symbolic gesture. “The risks to our forecasts remain rife,” the IEA stated, emphasizing that the trade war’s trajectory will dominate oil market sentiment in the coming months.

In conclusion, the oil market faces a perfect storm of declining demand, oversupply, and geopolitical uncertainty—all fueled by the US-China trade conflict. With prices already testing multiyear lows and production cuts reversing, the path to stabilization remains unclear. Investors should brace for further volatility, particularly if negotiations stall or OPEC+ fails to rein in overproduction. The data paints a stark picture: a 300 kb/d demand cut, a 150 kb/d US supply reduction, and a 6% drop in oil prices since early 2025 all underscore the trade war’s toll. For now, the market’s only certainty is its uncertainty.