Trump’s new tariffs send oil prices crashing to 2021 lows—global fuel demand in jeopardy?

Global crude oil prices have fallen sharply, with benchmark futures plunging to levels not seen since early 2021. The sudden drop follows the implementation of a new wave of tariffs by the administration of United States President Donald Trump, reigniting tensions in an already fragile trade environment. The impact of these tariffs is being felt across financial and commodity markets, particularly in the energy sector, where fears of weakening fuel demand have been reignited by escalating trade hostilities between the world’s two largest economies.

Brent crude futures declined by $2.10, or 3.34%, to $60.72 per barrel as of 0935 GMT on April 9, 2025, while US West Texas Intermediate (WTI) crude fell by $2.04, or 3.42%, to $57.54 per barrel. Both benchmarks had earlier recorded steeper losses of up to 4% before recovering marginally, according to trading data. The sustained downturn in prices marks the fifth consecutive daily loss, underlining the market’s growing pessimism about future demand prospects.

The tariffs that triggered this latest round of market volatility took effect at 12:01 AM EDT (0401 GMT) on April 9. Described by the White House as “reciprocal,” the measures include a sweeping 104% duty on a range of Chinese imports. The administration defended the decision as a necessary correction to what it views as an imbalanced trading relationship, though global reaction has been swift and largely critical.

How are Trump’s tariffs affecting global oil markets and demand outlook?

Energy analysts believe that the imposition of steep import duties could significantly dampen global economic activity, particularly in sectors heavily reliant on international trade. The uncertainty surrounding diplomatic negotiations has raised the possibility that industrial production could decline in key economies, reducing energy use across manufacturing, logistics, and transportation.

Trade tensions between the US and China have historically played a pivotal role in oil price dynamics. The 2018–2019 tariff standoff led to bouts of volatility, though the current measures represent one of the sharpest escalations in tariff severity. China has refused to roll back its existing 34% retaliatory tariffs and has since introduced additional countermeasures. In a strongly worded statement, Chinese officials described the US position as “economic blackmail.” This time, the Trump administration doubled down, slapping a further 50% tariff on selected Chinese products just hours after Beijing’s response.

As a result, investor sentiment across global energy markets has turned notably risk-averse. The increased likelihood of a prolonged stalemate between the US and China has triggered fears of a broader economic downturn. According to Ye Lin, vice president of oil commodity markets at Rystad Energy, the escalation reduces the likelihood of a near-term resolution, increasing recessionary pressures worldwide. Lin added that China’s projected oil demand growth—estimated to be in the range of 50,000 to 100,000 barrels per day—could face significant headwinds if the current dispute continues. Although some domestic stimulus measures may help mitigate the downturn, the trajectory remains highly uncertain.

What role is Russia playing as its crude dips below the Western price cap?

The global fallout from weakening oil prices has extended to Russia, whose ESPO Blend crude recently slipped below the G7-led $60 per barrel price cap for the first time. This development is not just symbolic—it raises serious questions about the enforcement of sanctions and the viability of Moscow’s export strategy under the current pricing environment.

The Western price cap was designed to limit Russian oil revenues while maintaining global supply stability. However, persistent price declines now pose a challenge to both objectives. A drop below the threshold invites speculation that Russia may look to renegotiate its trade arrangements or reorient export flows toward markets outside of the price cap enforcement regime, such as India and China. The effectiveness of the cap is now under renewed scrutiny, especially if Russia chooses to retaliate through policy or production changes.

Will OPEC+ production hikes worsen the global oil supply glut?

Amid weakening demand projections, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, have added further pressure on prices by confirming a planned production increase. The group will raise output by 411,000 barrels per day in May, a move that could deepen the supply-demand imbalance in the short term.

Historically, OPEC+ has used coordinated production cuts to stabilise prices, particularly during periods of demand destruction, such as during the COVID-19 pandemic. However, the group now appears to be shifting strategies, potentially to preserve market share or respond to shifting dynamics within the cartel itself. Market observers warn that this approach could flood the market with excess barrels at a time when global consumption forecasts are being revised downward, especially if recession risks continue to rise.

According to Ashley Kelty, an oil market analyst at Panmure Liberum, the Trump administration may be deliberately aiming to push oil prices closer to $50 per barrel, in the belief that US shale producers can withstand short-term disruption. However, Kelty expressed doubt about the sustainability of this approach, warning that low prices could force US producers to scale back output. This, in turn, could enable OPEC nations, particularly Saudi Arabia and the United Arab Emirates, to regain their role as global swing producers.

What do future oil price forecasts indicate for 2025 and beyond?

Financial institutions have begun adjusting their outlooks in response to the evolving market environment. Goldman Sachs revised its Brent crude forecast to $62 per barrel by the end of 2025, with a further decline to $55 anticipated by the end of 2026. The forecast for WTI has also been cut, with prices expected to reach $58 by late 2025 and fall to $51 by 2026.

These revised estimates reflect not only the immediate consequences of the trade war escalation but also a longer-term reassessment of global economic health, energy transition policies, and structural demand shifts. As emerging economies accelerate their adoption of renewable energy and electric vehicles, traditional fossil fuel demand faces growing structural headwinds. These developments suggest that even in the absence of acute geopolitical shocks, oil prices may struggle to return to the highs seen in the early 2020s.

Can US oil inventories and domestic policy offer near-term price support?

While global demand signals remain weak, US inventory data offered a minor counterbalance to the downward pressure on oil. The American Petroleum Institute reported a 1.1 million barrel decline in crude stockpiles for the week ending April 4, in contrast to expectations of a 1.4 million barrel increase as forecast in a Reuters poll. This unexpected drawdown helped limit losses in the latter part of the trading session, although it was not enough to reverse broader bearish sentiment.

Looking ahead, traders will be closely watching for policy responses from Washington, including potential measures to stabilise domestic production or counter inflationary effects from falling oil revenue. However, given the current political emphasis on tariffs and economic nationalism, there appears to be limited appetite for short-term market interventions. The absence of coordinated policy efforts could mean that oil prices remain under sustained pressure throughout the coming quarters.

How will geopolitical retaliation and global trade policies shape oil market volatility?

The oil market’s sharp reaction to Trump’s tariff escalation highlights the increasingly interconnected nature of trade policy and energy economics. As the European Union signals its intention to impose retaliatory measures and major economies like Canada and China harden their stance, the geopolitical backdrop for commodities has become more volatile.

In the current environment, any signs of reconciliation—or further escalation—between the US and its trading partners are likely to have an outsized impact on oil market sentiment. Until meaningful diplomatic progress is achieved, the oil market is expected to remain highly sensitive to political developments, tariff announcements, and shifts in production strategy from key players such as OPEC+ and Russia.

With prices now hovering just above key technical thresholds and a surplus looming, the trajectory of global oil markets in 2025 may hinge not on fundamentals alone, but on the evolving landscape of international politics, trade alliances, and the shifting balance between energy supply and demand.