Oil Steadies as Market Tracks Risk-Off Tone, Trade War Concerns

The oil market in April 2025 has entered a precarious equilibrium, balancing fleeting optimism over trade policy adjustments with deepening anxieties about the escalating U.S.-China trade war. Prices have stabilized near $60 per barrel for WTI and $65 for Brent after a volatile month marked by tariff-driven swings. Yet beneath this surface calm lies a market deeply sensitive to geopolitical and economic crosscurrents.

Trade Tariffs: The New Market Volatility Driver

The imposition of 125% tariffs on Chinese imports by the Trump administration has created a perverse incentive structure. While U.S. crude prices dipped 4.3% in April, the initial tariff-driven rally—where WTI surged 13%—revealed how markets now trade on the expectation of policy shifts rather than fundamentals. The 10% tariff reduction for 70 other trade partners highlights the fragmented nature of this "trade war," leaving producers and investors in a state of perpetual uncertainty.

Analysts like Jim Burkhard of S&P Global are right to question whether this cacophony of negotiations can lead to stability. The data is clear: when tariffs rise, oil demand growth forecasts fall. The IEA’s downward revision of 300,000 barrels per day (b/d) for 2025—its largest cut in three years—reflects this reality.

China’s Paradox: Growth Amid the Storm

Chinese exports defied expectations in March, surging 12.4% year-over-year to $313.9 billion—a figure triple analyst predictions. This “frenzy” before the tariff deadline has kept crude imports at record levels (12.1 million b/d), but the data masks underlying fragility. Rystad Energy’s warning that prolonged trade tensions could halve China’s oil demand growth—from 180,000 b/d to 90,000 b/d—reveals the vulnerability of the market’s current optimism.

The trade surplus expanding to $27.6 billion in March is a double-edged sword. While it signals Chinese industrial resilience, it also underscores the country’s reliance on external markets—a risk as the U.S. tightens its economic noose.

Sectoral Fault Lines: Diesel and Petrochemicals in the Crosshairs

The trade war’s impact is uneven. While gasoline and jet fuel demand remain resilient in a “mild” trade scenario, diesel and petrochemicals face existential threats. Rystad estimates PDH projects reliant on U.S. propane imports could lose 100,000 b/d of demand, while naphtha may only partially offset losses. This divergence suggests a market bifurcation:

• Winners: Domestic fuel consumers in large economies.
• Losers: Petrochemical producers tied to global trade.

Investors should scrutinize companies like ExxonMobil (XOM) and Chevron (CVX)—both exposed to petrochemical projects—against the backdrop of this sectoral slowdown.

Geopolitical Crosscurrents: From Iran to Venezuela

The U.S.-Iran talks in Oman offer a rare silver lining, but their impact is limited without broader trade resolution. Meanwhile, Venezuela’s PDVSA halting Chevron shipments after U.S. sanctions underscores the fragility of supply chains. The UAE’s $10 billion bid for Aethon Energy’s U.S. gas assets signals Middle Eastern energy firms are doubling down on North American assets—a hedging strategy against regional instability.

The Commodity Hedge: Gold and Copper Signal Shifts

Gold’s ascent to Goldman Sachs’ $3,700/oz target and copper’s rebound to $10,170/tonne highlight a market preparing for both inflation and deflationary pressures. These metals now act as dual barometers: gold for geopolitical risk, copper for trade-driven demand. Investors ignoring this interplay risk mispricing oil’s downside.

Conclusion: A Fragile Steadiness

The oil market’s stabilization is a mirage. While prices hover near $60-$65, the foundations are shifting:
- Demand Destruction: The IEA’s 300,000 b/d cut equals 0.3% of global demand—a figure that could expand if trade tensions persist.
- Geopolitical Risks: Iran talks and European LNG booms offer little relief; instead, they highlight energy’s role as a geopolitical weapon.
- Corporate Weakness: BP’s $27 billion debt load and Exxon’s failed Cyprus well reflect an industry struggling to balance exploration with fiscal discipline.

For investors, this is a market to tread cautiously. Long positions require hedging via gold (GLD) or inverse oil ETFs (OIL). Short-term traders might exploit volatility with options, but the broader trend leans bearish unless trade policies reverse. As Rystad’s analysis shows, every 1% tariff increase reduces oil demand by 0.15 million b/d—a calculus no investor can afford to ignore.

The oil market’s “stability” is a pause between storms. Until the trade war’s trajectory is clear, risk remains front and center.