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Informist, Friday, Apr. 4, 2025

 

By Ashutosh Pati and Sandeep Sinha

 

MUMBAI – Crude oil prices in the international and domestic markets came under increased selling pressure due to concern about a global trade war, which could lead to a slowdown in global demand. The selling pressure also intensified as prices have given a fresh breakdown below key technical level that led to stop-losses being hit and unwinding of long positions by commodity trading players.

 

Crude oil also got caught up in the tit-for-tat tariff war between China and the US after the former retaliated with a 34% tariff on all goods coming from the US. The two countries are biggest users of crude oil globally, accounting for roughly 35% of global demand.

 

China's finance ministry Friday said it will impose 34% tariffs on all goods imported from the US, with effect from Thursday. "China urges the United States to immediately cancel its unilateral tariff measures and resolve trade differences through consultation in an equal, respectful and mutually beneficial manner," CNBC reported, quoting China's finance ministry.

 

On Thursday, US President Donald Trump announced reciprocal tariffs against more than 60 countries and territories, sparking fear of a recession in the US and a global economic slowdown.

 

Some of the US' top trading partners such as China, the European Union and Vietnam, have been hit the hardest with substantially higher tariffs. Trump slapped a 34% tariff on China, 46% on Vietnam, and 32% on Taiwan. The new reciprocal rate on China adds to the existing tariffs totalling 20%, bringing the tariff rate on Beijing to 54%.

 

China's weak consumption outlook adds bearish pressure on crude prices, said Navneet Damani, head of research, commodities and currencies at Motilal Oswal Financial Services. "Global oil growth is forecast to reduce to 600,000 barrels per day in 2025 from 900,000 barrels per day and 2026 demand growth is estimated at 700,000 barrels per day," Damani said.

 

Trump's reciprocal tariffs triggered counter measures from China, and more countries may follow, potentially leading to a global trade war, hurting global economic growth and demand for oil. "There are concerns that the tariffs will lead to a further weakening of oil demand, especially as China is particularly hard hit by the reciprocal tariffs. If the other countries respond to the US tariffs with counter-tariffs, this could set off a spiral of tariffs that would put even more pressure on demand," Carsten Fritsch, commodity analyst at Commerzbank said in a report.

 

Market participants also expect a potential oversupply in the oil market, driven by increases in production from countries outside the Organization of the Petroleum Exporting Countries and allies. "The oversupply on the oil market is now (after OPEC, allies output increase) likely to be larger in the second quarter, which speaks in favour of a lower oil price," the German bank added.

 

Eight member nations of OPEC and its allies agreed to increase production by 411,000 barrels per day in May. The cartel had planned to raise output by 135,000 barrels per day under its original plan. It attributed the increase in output to healthy market fundamentals and a "positive market outlook". "However, we believe tariff uncertainty clouds the outlook for demand and prices," analysts at ING Economics said in a report.

 

"The financial markets are in a state of panic, assuming the worst-case scenario of an all-out trade war. The rout is being exacerbated by technical selling, which is characteristic of market shocks. I expect Trump to soften his tone, emphasise that he is looking for deals and concessions rather than a trade war," Vandana Hari, founder and chief executive officer at Vanda Insights told Informist. "That seems like the only move with a potential to stem the bloodbath," she said.

 

The barrage of tariffs and the unexpected rise in production by OPEC and its allies pushed crude oil prices to a three-year low of $60.45 per barrel, with prices falling over 15% in the last two days. At 2056 IST, the most-active May West Texas Intermediate contract was at $62.68 per barrel, down 6.4% from the previous close. On the domestic bourse, the most-active April crude oil contract was at INR 5,318 per barrel, down 7.3% from the previous close.

 

The trend for crude oil has turned bearish as the WTI price has given a breakdown below the $65 a barrel and is trading below the key simple and exponential moving averages on the daily, 200-day, and monthly charts.

 

"Full blown tariff war between US and other major economies of the World, China in particular and OPEC+'s surprising timing for the announcement of higher than expected production cut roll-back will continue to weigh on market," said Ashwini Bansod, head of research – commodities at PhillipCapital.

 

"The pace of fall might however weaken as the markets adjust to the new reality. MCX Crude oil front month initial support near INR 4,600-INR 4,800 per barrel. Upside near INR 6,000 over the next two weeks. NYMEX WTI front month support seen near $58-$60 a barrel with resistance seen near $67-$69. Higher probability that support might be tested over the next two weeks," Bansod added.

 

The sudden plunge in prices has prompted analysts to revise down their year-end oil price forecasts. Global investment bank Goldman Sachs cut its oil price forecast by 4.3% for WTI crude to average $66 per barrel this year. The bank also trimmed its 2026 WTI crude price forecast to average $59 per barrel. The bank attributed the downward revision in prices to risks of higher supply from OPEC and its allies and the global trade war triggering a recession.

 

"The risks to our reduced oil price forecast are to the downside, especially for 2026, given growing risks of recession and to a lesser extent of higher OPEC+ supply," Goldman Sachs was quoted by Reuters as saying in a note.

 

Trump has vouched for lower crude prices and asked OPEC, allies to increase production. However, "WTI (crude) trades near levels where US producers may struggle to stay profitable on new production, and the move from OPEC+ signals a willingness to endure short-term price pain to reclaim lost market shares," Ole Hansen, head of commodity strategy at Saxo Bank said in a note to clients.

 

The cartel and Trump often clashed during his first term when he demanded that OPEC raise crude oil output to compensate for the fall in Iranian supply due to the US sanctions. It has become increasingly clear that Trump's "Drill, baby, drill" cannot be achieved without hurting output from high-cost producers, many of which are located in the US, and production growth will likely slow, thereby supporting prices while handing market share back to OPEC, Hansen added.  End

 

US$1 = INR 85.23

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Akul Nishant Akhoury

 

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