Oil Drops as U.S.-China Trade War Intensifies

The escalating trade war between the United States and China has sent shockwaves through global markets, with oil prices taking a significant hit. As of April 11, 2025, the intensification of tariffs and retaliatory measures has led to a sharp decline in crude oil and gasoline prices, reflecting growing concerns about a slowdown in economic growth and energy demand. The May WTI crude oil (CLK25) is down -2.68 (-4.30%), and May RBOB gasoline (RBK25) is down -0.0765 (-3.75%). This downturn is not just a temporary blip but a symptom of deeper economic anxieties that could have long-lasting effects on the oil market.

The trade conflict has reached a new level of intensity, with the U.S. imposing 125% tariffs on Chinese goods and China retaliating with 84% tariffs on U.S. goods. This escalation has led to a stock selloff, with the S&P 500 companies losing $5.8 trillion since Donald Trump announced tariffs late on Wednesday. This is the largest four-day decline since the benchmark was established in the 1950s. The U.S. Treasury curve has steepened to its highest level since February 2022, indicating market anxiety about the economic impact of the trade war. The Cboe Volatility Index has also climbed for the fourth consecutive session, reaching its highest level since April 1, 2019, reflecting increased market volatility and uncertainty.



The impact of the trade war on the oil market is multifaceted. Firstly, the escalating tariffs are expected to slow down economic growth in both countries, which in turn will reduce energy demand. The U.S. tariffs on Chinese goods rose to 125% on Wednesday, and China retaliated with 84% tariffs on U.S. goods. This escalation has led to a sharp decline in stock markets, with the S&P 500 companies losing $5.8 trillion since Donald Trump announced tariffs late on Wednesday. This economic slowdown is likely to persist, as the U.S. Treasury curve steepened to its highest level since February 2022, indicating concerns about future economic growth and energy demand.

Secondly, the trade war is causing a shift in oil supply dynamics. China, the world's top crude importer, has been buying lower volumes of U.S. crude oil this year due to the tariff war. With the latest tariff escalation, the cost of U.S. crude in China has nearly doubled, making it uneconomical for Chinese refiners. As a result, China is expected to stop imports of U.S. crude and may increase purchases from the Middle East, especially after Saudi Arabia slashed the price of its crude loading for Asia for May to a multi-year low level over the Dubai/Oman benchmarks.

Thirdly, the trade war is exacerbating geopolitical risks, which can further impact the oil market. For example, the U.S. has launched strikes on Yemen's Houthi rebels, and Defense Secretary Hegseth said strikes would be "unrelenting" until the group stops attacking vessels in the Red Sea. This increased geopolitical tension could lead to disruptions in crude supplies from the region, driving up oil prices.

Lastly, the trade war is likely to cause long-term price volatility in the oil market. The uncertainty surrounding the trade war and its impact on energy demand and supply dynamics could lead to significant price swings. For instance, oil prices have been on the defensive over the past week and tumbled to a 4-year low on Wednesday due to concerns about weaker global economic growth and energy demand.

In conclusion, the trade war between the United States and China has significant potential long-term effects on the oil market, including reduced energy demand, shifts in oil supply dynamics, increased geopolitical risks, and potential for long-term price volatility. These effects are likely to persist as long as the trade war continues, and could have far-reaching consequences for the global economy. Investors should brace for continued volatility and consider diversifying their portfolios to mitigate the risks associated with the trade war.