Oil's Descent: Trade Wars and OPEC+ Struggles Weigh on Prices

The oil market is in a holding pattern, caught between the twin forces of escalating trade tensions and a supply landscape riddled with contradictions. As Brent crude hovers around $65/barrel in mid-April 2025—down over $10 from February highs—the story isn’t just about economics. It’s about geopolitics, stubbornly weak demand, and an OPEC+ alliance struggling to exert control over its own fate.

The Price Plunge: Trade Wars Take the Wheel

Oil’s recent stumble began in March as the U.S. and China ratcheted up tariffs, sending shockwaves through global supply chains. The 145% U.S. levy on Chinese goods, even if exempting energy products, amplified fears of a synchronized economic slowdown. The International Energy Agency (IEA) cut its 2025 demand growth forecast by 300,000 barrels per day (kb/d) to 730 kb/d, a stark contrast to its earlier rosy outlook.

The pain is sharpest in Asia. While China’s Q1 exports surged 12.4% year-over-year—a sign of front-loaded trade activity—the IEA warns a Q2 slump could follow. “This isn’t just about tariffs on goods—it’s about the broader confidence crisis,” says an analyst at Goldman Sachs, which slashed its 2025 oil price forecast to $60/bbl from $75.

OPEC+’s Paper Tiger: Output Cuts Meet Reality

OPEC+’s April decision to boost production by 411 kb/d in May aimed to stabilize prices, but compliance is shaky. Kazakhstan, the UAE, and Iraq are already overproducing, with Kazakhstan hitting a record 1.8 million barrels per day (mb/d)—390 kb/d above its quota. Saudi Arabia’s spare capacity of 3.1 mb/d provides a safety net, but the cartel’s credibility is fraying.

Meanwhile, U.S. shale faces a reckoning. At $65/bbl, breakeven costs for new wells are nearing a breaking point, per the Dallas Fed. New steel tariffs and inflationary pressures have pushed some producers to idle projects. The 2025 U.S. supply growth forecast was trimmed to 490 kb/d, with 2026 growth now expected to slow further to 280 kb/d.

The Elephant in the Room: Trade Talks and Energy Transition

Investors are pricing in a worst-case scenario: no tariff resolution and a global recession. Even if the U.S. and China strike a deal, the damage to 2025 demand is done. The IEA now projects 2026 demand growth at just 690 kb/d, as EV adoption accelerates and China’s coal plants push its emissions peak to 2028.

Geopolitical risks complicate matters. U.S. sanctions on Venezuela’s oil exports and stalled Iran nuclear talks add volatility. “This isn’t just a cyclical dip—it’s structural,” says an energy analyst.

What’s Next? A Rocky Road Ahead

The oil market is now a prisoner of macroeconomic forces. With OPEC+’s output hikes likely offset by non-compliance, and U.S. shale investment faltering, supply may tighten later this year. But demand risks remain acute.

The $60s price range is likely here to stay unless trade tensions ease or OPEC+ achieves ironclad compliance—a tall order. Investors should monitor two key metrics: U.S.-China tariff negotiations and the monthly OPEC+ compliance reports.

Conclusion: Oil’s New Normal?

The numbers tell the story: $65/bbl Brent reflects a market where trade wars and weak demand dominate. The IEA’s 2025 demand downgrade, OPEC+’s fractured cohesion, and U.S. shale’s cost pressures paint a bleak picture.

For now, oil remains a cautionary trade. While a rebound to $70/bbl isn’t impossible, it would require a “miracle” of synchronized demand growth and production discipline—a scenario even optimists find hard to swallow.

Investors should brace for more volatility. As one trader put it: “This isn’t a market—it’s a warning system for the global economy.” And the warning lights are flashing red.