Oil prices plunged over 5% on Friday amid intensifying trade tensions between the United States and China, fuelling fears of a slowdown in global demand. The sharp decline followed China’s announcement of a 34% retaliatory tariff on all American imports in response to fresh US duties. This tit-for-tat escalation raised concerns over a looming global trade war that could dampen economic growth and reduce commodity consumption.

China’s tariff package specifically targets US energy exports, including oil and liquefied natural gas (LNG). In response, Brent crude futures fell by $3.78, settling at $66.06, while WTI crude dropped $4.31 to close at $62.32—their weakest finishes since April 2021. Weekly losses stood at -9.98% for Brent and -9.73% for WTI, and prices continued to dip over the weekend.

According to Baker Hughes’ weekly update released on Friday, the number of active US oil and gas rigs declined for the second consecutive week, falling by two units to a total of 590 as of April 4. This figure, widely viewed as an indicator of future production trends, showed mixed movements: oil rigs increased by five to 489, marking their highest count since June 2024, while gas rigs fell sharply by seven to 96—the steepest drop since May 2023 and the lowest since September 2024.

Interestingly, this reduction in rig activity appears to diverge from projections by the US Energy Information Administration (EIA). While analysts foresee spot crude prices potentially declining for a third consecutive year in 2025, the EIA anticipates an increase in US crude output, rising from a record 13.2 million barrels per day in 2024 to approximately 13.6 million in 2025.

On Monday, oil prices extended their losses, plunging over 2% to levels unseen in nearly four years. The downturn was largely driven by market unease that the US President’s newly imposed tariffs could trigger a global recession, consequently curbing energy consumption. Brent crude ended the day at $64.27 per barrel (down 2.71%), while WTI settled at $60.96 (down 2.18%), both marking their lowest closes since April 2021, after last week’s 11% slide.

The trading environment was turbulent, with substantial price swings throughout the session. Overnight, crude prices fell by more than $3 per barrel, only to recover briefly by over $1 on Monday morning amid reports suggesting a potential 90-day halt on tariffs. However, the White House officials quickly dismissed these reports, sending prices tumbling once again.

Further intensifying the downward momentum, Saudi Arabia announced on Sunday a notable cut in crude prices for Asian customers, setting May’s price at its lowest level in four months.

Adding to market pressure, OPEC+ revealed plans to fast-track its production hike, now aiming to introduce 411,000 barrels per day in May which is well above the previously scheduled 135,000 bpd increase.

Just days prior to the US administration’s retaliatory tariff announcement, market attention was largely focused on robust demand expectations, tight oil inventories and potential supply risks stemming from sanctions on Russia, Iran, and Venezuela.

By Tuesday, oil markets had slumped even further, with both benchmarks shedding over $2 per barrel and reaching their lowest marks in four years. The slide was driven by mounting recession worries, deepened by the worsening U.S.-China trade dispute, which rattled investor sentiment.

Brent crude closed at $61.72 per barrel, down by $2.55, while WTI ended at $58.36, losing $2.60.

A White House spokesperson confirmed plans to enforce a 104% tariff on Chinese imports starting at 12:01 A.M. EDT on Wednesday. The move followed China’s refusal to remove its retaliatory tariffs by the noon Tuesday deadline set by the US President.

In a firm stance earlier Tuesday, China declared it would not give in to what it described as American ‘blackmail.’ The statement came in response to threats from the US President to impose an additional 50% tariff if China maintained its 34% duties on US products. China’s Commerce Ministry amplified the tension by asserting the country would ‘fight to the end,’ fuelling broader economic concerns.

The US administration has signalled a desire to bring oil prices down to $50 per barrel or less, even if it means enduring short-term market disruptions similar to the 2014 oil price war between OPEC and American shale producers. The ultimate goal appears to be lowering production costs across the sector.

In a surprise turn on Monday, the US President announced the start of direct negotiations with Iran over its nuclear programme. However, Iran’s foreign minister later clarified that any such discussions would be indirect. Then, on Tuesday, US Energy Secretary Chris Wright warned that tougher sanctions could be imposed on Tehran should it fail to reach an agreement with the US President.

At the time of writing in the early hours of Wednesday, Brent crude was seen to be trading around $60.26 while WTI Crude was trading at $57.01.