Oil Prices Plunge to Lowest Since 2021 Amid US-China Trade Tensions and Rising Supply

Oil prices fell for a fifth consecutive day on Wednesday, reaching their lowest levels since February 2021, as escalating trade tensions between the United States and China dampened global demand outlook and rising supply concerns further pressured the market.

Brent crude futures dropped $1.39, or 2.21%, to $61.43 per barrel by 9:55 a.m. Saudi time, while U.S. West Texas Intermediate (WTI) crude fell $1.50, or 2.52%, to $58.08. Both benchmarks had slumped by as much as 4% earlier in the session before trimming losses slightly.

The ongoing selloff, which began after U.S. President Donald Trump announced sweeping new tariffs on most imports last week, has raised fears of a prolonged global trade war that could curb economic growth and hurt energy consumption. Since the announcement, both Brent and WTI have lost significant ground, reflecting growing investor pessimism.

At the heart of the market’s anxiety is the latest escalation in the U.S.-China tariff war. On Wednesday, Trump’s 104% tariffs on Chinese goods came into effect, following Beijing’s refusal to lift its retaliatory 34% levy by the noon Tuesday deadline. Instead, China responded defiantly, accusing the U.S. of economic blackmail and vowing not to yield under pressure.

“The risk of a global recession is mounting,” said Ye Lin, Vice President of Oil Commodity Markets at Rystad Energy. “China’s aggressive retaliation diminishes the chances of a quick deal between the world’s two biggest economies.” She warned that China’s oil demand growth, currently between 50,000 to 100,000 barrels per day, could be at risk if the standoff persists, though domestic stimulus could offset some of the impact.

The structure of the Brent market has also shifted noticeably. The premium of the prompt Brent contract over the six-month forward contract — a key indicator of market tightness — narrowed to just 98 cents a barrel, down from $3.53 on April 2. This flattening backwardation signals growing concerns over a crude surplus.

Adding to the downward pressure is a recent decision by OPEC+ to increase output by 411,000 barrels per day starting in May. Analysts warn that the boost in production, amid uncertain demand, could tip the market into surplus territory.

Goldman Sachs now projects that Brent could drop to $62 per barrel by December 2025 and further to $55 by the end of 2026, while WTI may fall to $58 and $51 over the same period, respectively.

Meanwhile, Russia’s ESPO Blend crude slipped below the $60 per barrel price cap for the first time, reflecting the broader market weakness.

In a slight reprieve, the American Petroleum Institute reported a 1.1 million barrel decline in U.S. crude inventories last week, against expectations of a 1.4 million barrel build. Investors await official figures from the U.S. Energy Information Administration, due later Wednesday.