Crude Oil Prices Slip Below $64 Amid Trade Tensions and OPEC+ Uncertainty

The May WTI crude oil contract closed down $1.60 to settle at $63.08 per barrel, marking a 2.5% decline from the previous week. This downward trend reflects a complex interplay of geopolitical risks, trade policy shifts, and evolving supply-demand dynamics. As investors weigh the implications of these factors, the path forward for oil prices remains fraught with uncertainty.

Trade Wars and Tariff Turbulence

The recent price drop is partly attributable to escalating U.S.-China trade tensions. Following the Trump administration’s revised tariff policies—which initially exempted Chinese electronics but later expanded to include 10% duties on $200 billion in goods—market participants have grown increasingly wary of demand destruction in key economies. The U.S. Energy Information Administration (EIA) now projects 2025 global oil demand growth to slow to just 730,000 barrels per day (b/d), down sharply from earlier estimates of 1.03 million b/d. This downgrade underscores the fragility of non-OECD demand, particularly in China, where retaliatory tariffs on U.S. goods have dented manufacturing activity.

Meanwhile, U.S. shale producers face a dual challenge: lower prices are squeezing margins, while capital discipline—once a stabilizing factor—has limited drilling activity. show a 12% decline in rigs active since early 2025, though output remains resilient at 5.2 million b/d. This moderation in supply growth has prevented a sharper price collapse but has not offset broader macroeconomic headwinds.

Geopolitical Crosscurrents

Middle Eastern tensions continue to loom large. The unresolved Russia-Ukraine war and escalating Iran-Israel hostilities have kept supply disruption risks elevated. Iraq’s decision to cut exports by 70,000 b/d to comply with OPEC+ quotas adds another layer of complexity, while its ambitions to boost output to 7 million b/d with Chinese support threaten to fracture OPEC+ cohesion.

Turkey’s role in rerouting Middle Eastern crude via new pipelines aligned with China’s Belt and Road Initiative (BRI) has further reshaped trade flows. These shifts, combined with U.S. sanctions targeting Chinese refiners purchasing Iranian crude, have created regional price disparities—most notably in Western Canadian Select, which rose 4.41% in March due to infrastructure bottlenecks.

OPEC+ Dynamics and Market Sentiment

OPEC+’s production adjustments have amplified volatility. The group’s decision to advance planned supply increases from July to May triggered a 14% drop in Brent prices in early April, indirectly pressuring WTI. While compliance with existing cuts remains high, internal disagreements over output targets could resurface if prices remain below $65.

Technical indicators also point to bearish momentum. WTI is now trading near the lower end of its $60–$65 range, with resistance at $65 and support at $60. A breakdown below this level could test $58, particularly if the Fed resists cutting rates despite tariff-driven inflation concerns.

Demand-Supply Outlook and Policy Risks

The EIA’s Short-Term Energy Outlook (STEO) now forecasts an average WTI price of $68/barrel for 2025—a $6/bar drop from earlier estimates—citing slower demand growth and rising global inventories. Non-OPEC supply, including U.S. shale, is projected to grow by just 800,000 b/d this year, down from 2024’s 1.2 million b/d surge.

However, two wildcard factors could alter this trajectory:
1. Geopolitical escalation: A closure of the Strait of Hormuz or renewed conflict in Ukraine could send prices soaring.
2. Policy shifts: If China resumes U.S. LNG imports or the U.S. lifts Iranian sanctions, supply could flood the market.

Conclusion

The May WTI contract’s drop to $63.08 reflects a market grappling with conflicting forces. On one hand, OPEC+ discipline, U.S. shale restraint, and a weaker dollar provide floor support. On the other, trade wars, slowing demand, and geopolitical risks threaten further declines.

The EIA’s $68 annual average forecast hinges on OPEC+ maintaining cohesion and China’s stimulus measures boosting demand. However, with global inventories expected to rise from mid-2025 and the Fed holding rates steady at 5.25%, the path to $70 remains steep. Investors must remain vigilant: while $60 offers a near-term floor, a resolution to trade disputes or Middle Eastern conflicts could redefine this outlook entirely.

For now, the $60–$65 range is the battleground. Traders betting on volatility should monitor OPEC+ compliance data and the Fed’s next policy move—both could be decisive in determining whether crude finds stability or sinks further.