Oil Plunges on Trade War Fears

Oil prices have been on a rollercoaster ride in recent months, with geopolitical tensions and trade war fears driving market volatility. As of February 6, 2025, oil prices have been under downward pressure, with West Texas Intermediate (WTI) crude futures falling 0.6% to settle below $73 per barrel, and Brent crude futures dropping dramatically to $74 per barrel. The main fear is that the U.S.-China trade war could seriously damage oil demand growth this year, already under pressure from weakening margins.



The U.S.-China trade war has been a significant factor in the recent oil price fluctuations. The threat of tariffs on Chinese imports has sparked demand fears, pushing prices down. In response, China has retaliated with tariffs on a range of U.S. goods, including oil and liquefied natural gas, further exacerbating the situation. The U.S. shipped about 250,000 barrels of crude a day to China on average last year, a relatively small volume, but an escalation of trade disputes between the world's two largest economies could have a broader impact and hurt global consumption.



Geopolitical risks, such as the Middle East conflict, also play a role in influencing oil prices. The ongoing Russia-Ukraine conflict has raised concerns about supply disruptions, adding a risk premium to the market. However, traders seem more concerned about supply-demand dynamics than the latest geopolitical drama. The market's reaction to geopolitical risks is influenced by its assessment of the likelihood and duration of supply disruptions. In the current situation, traders seem to be betting that the conflict won't lead to long-term disruptions in oil production from key players.

The OPEC+ strategy, including voluntary production cuts and potential changes, also affects the oil market in the context of trade war fears and geopolitical risks. OPEC+ countries have been implementing voluntary production cuts to manage the oil market and maintain prices. In June 2023, OPEC+ announced a continuation of these cuts, with Saudi Arabia increasing its cut by 1 mb/d from July and Russia adding 0.3 mb/d from October. These cuts help to reduce the global oil supply, which in turn supports prices. However, if OPEC+ decides to reverse its production cuts, it could lead to a flood of oil into the market, potentially driving down prices. Conversely, if OPEC+ decides to maintain or even deepen its cuts, it could support prices, especially if geopolitical risks lead to supply disruptions elsewhere in the world.

In conclusion, oil prices have been falling due to trade war fears and geopolitical risks. The U.S.-China trade war has sparked demand fears and pushed prices down, while geopolitical risks, such as the Middle East conflict, have added a risk premium to the market. The OPEC+ strategy, including voluntary production cuts and potential changes, also affects the oil market in the context of trade war fears and geopolitical risks. Traders seem more concerned about supply-demand dynamics than the latest geopolitical drama, but the situation remains fluid and subject to change. As the market continues to assess the impacts of trade war fears and geopolitical risks, oil prices will likely remain volatile in the near term.