The Unlikely Culprits Behind the Oil Price Plunge: Tariffs and OPEC+'s Own Making

The oil market in 2025 is caught in a paradox. OPEC+, the cartel once synonymous with price manipulation, has become an unwitting accomplice to a historic price slump—while trade wars, not geopolitical strife or supply shocks, are now the dominant force destabilizing the market. The result? Crude prices have plummeted to four-year lows, with WTI trading at $55.53 per barrel in May 2025, a level last seen in 2021. How did we arrive here? The answer lies in the odd bedfellows of overproduction and protectionism.

OPEC+’s Self-Inflicted Wound: Overproduction and Internal Chaos

OPEC+’s recent decisions have been less about strategic market management and more about punitive measures against its own members. In April 2025, the group announced a production increase of 411,000 barrels per day (bpd) for June, tripling Goldman Sachs’ initial forecast. This marked the second consecutive month of accelerated output hikes, pushing total increases to over 800,000 bpd in two months. The move was partly retaliation against non-compliant members like Kazakhstan and Iraq, which had exceeded their quotas by hundreds of thousands of barrels daily.

Kazakhstan, for instance, ramped up output to a record 1.8 million bpd, far exceeding its quota of 1.41 million bpd. Such overproduction has created a supply glut, even as OPEC+’s March 2025 output remained below its implied annual target of 42.9 million bpd. The result? A market oversaturated with crude, with the EIA projecting global oil prices to average just $61.81 per barrel for WTI in 2025—a sharp drop from earlier forecasts.

Tariffs: The Unseen Hand Crushing Demand

While OPEC+ struggles with internal discord, the real villain of this story is trade protectionism. U.S. President Donald Trump’s erratic tariff policies, particularly those targeting China, have become a drag on global oil demand. By early 2025, the U.S.-China trade war had sent China’s manufacturing activity to a 16-month low, while the U.S. economy contracted in Q1. The fallout? The EIA slashed its 2025 oil demand growth forecast by 300,000 bpd to just 730,000 bpd, with the IEA warning of further declines in 2026.

Tariffs have also disrupted energy trade directly. China’s retaliatory tariffs on U.S. ethane and LPG have stifled American shale exports, deterring investment in projects with breakeven costs above $65 per barrel. The Dallas Fed Energy Survey highlights that U.S. shale producers are now cutting spending as prices sink below that threshold.

The Perfect Storm: Oversupply Meets Slowing Demand

The collision of these forces has created a market in freefall. By May 2025, WTI had dropped to $55.53—the lowest since February 2021—while Brent fell to $58.50. Goldman Sachs now predicts prices could dip further, to $59 for WTI and $63 for Brent, as non-OPEC+ supply grows in 2026. Brazil, Guyana, and Canada alone are expected to add 520,000 bpd of new production, outpacing demand growth.

Meanwhile, OPEC+’s ability to course-correct is hamstrung by its own members’ overproduction and the cartel’s lack of enforcement power. As one trader put it: “OPEC+ can’t even control its own members, let alone global trade tensions.”

Investment Implications: Navigating the Volatility

For investors, the path forward is fraught with uncertainty but offers opportunities for the cautious.

1. Short-Term Pain, Long-Term Gain?
2. Oil majors like ExxonMobil and Chevron may struggle amid low prices, but their balance sheets are far stronger than smaller shale players.

3. Refiners (e.g., Valero, Marathon Petroleum) could benefit from narrowing spreads between crude and refined products if demand stabilizes.

4. Geopolitical Risks and Tariff Rollbacks

5. A 90-day “tariff reprieve” between the U.S. and China offers a flicker of hope, but no deal is finalized. Investors should monitor trade talks closely.

7. The Breakeven Trap
   Shale stocks like Pioneer Natural Resources or Continental Resources are vulnerable. Their shares have already dropped as prices fall below $65/bbl.

Conclusion: The Market’s New Normal—And Its Limits

The oil market of 2025 is a study in contradictions. OPEC+’s internal strife and the U.S.-China trade war have combined to create a supply-demand imbalance so severe that prices are now hostage to geopolitical forces, not just geology. The EIA’s lowered forecast of $61.81/WTI and the IEA’s warning of 690,000 bpd demand growth in 2026 underscore a grim reality: unless trade tensions ease or OPEC+ regains discipline, the oil era of $100+ barrels is a distant memory.

Yet all is not lost. Investors who focus on defensive plays—such as integrated majors with refining exposure or companies insulated from shale’s breakeven pressures—might weather the storm. But for now, the market’s message is clear: in an era of self-inflicted oversupply and protectionism, oil’s golden age is over.

The oil market has become a prisoner of its own making—and its captors are not just in OPEC+ capitals, but in Washington and Beijing.