Oil prices rose 1% on Tuesday, recovering from a heavy sell-off that sent prices to their lowest level in nearly four years in the previous session. This increase was driven by concerns that US tariffs could lead to a decline in global demand, threatening the global economy with a recession. However, analysts caution that risks remain on the downside.
Brent crude futures rose 72 cents, or 1.1%, to $64.93 a barrel. U.S. West Texas Intermediate (WTI) crude futures rose 75 cents, or 1.2%, to $61.45 a barrel as of 0535 GMT.
On the other hand, Yoshida of Rakuten Securities expects WTI to fall to as low as $50 a barrel if the stock market panic persists for a longer period. Last week, Brent and West Texas Intermediate crude prices fell by 14% and 15%, respectively, after US President Donald Trump announced he would impose “reciprocal tariffs” on all imports. This decision sparked widespread concern about its impact on global economic growth.
Warren Patterson, head of commodity strategy at ING, said oil prices recovered some of the losses with a slight rise, supported by more stable movements in equity markets. He added: “The market has seen a heavy sell-off in recent days due to expectations of a significant decline in demand, but the magnitude of this decline remains unclear.”
ING explained in a note issued on Tuesday that risks remain tilted to the downside due to Trump’s threats to impose an additional 50% tariff on Chinese goods if China does not lift its retaliatory 34% tariffs on Tuesday.
Trade Conflict and Market Implications:
Threats and Responses:
China is unlikely to change its trade policy, according to analysts. Therefore, we are expected to witness further escalation in the trade war between the two countries. Analysts confirm that this escalation will increase concerns about economic growth and increase anxiety about oil demand.
Earlier, oil prices fell 2% due to fears of the impact of tariffs on the global recession and the decline in energy demand. However, markets expect the decline in oil prices to be limited, anticipating the possibility of a reversal in the near future.
On the other hand, Trump emphasized that tariffs, which start at 10% on all US imports, with targets reaching 50% on some goods, will contribute to the revival of American industry. He explained that this decision aims to address the deterioration of the US manufacturing base, which has declined during decades of global trade liberalization.
In contrast, many countries are seeking exemptions or reductions from tariffs. China, the world’s second-largest economy after the United States, has also announced plans to impose reciprocal tariffs.
Chinese efforts to stabilize its domestic capital markets have intensified. China has emphasized that it will not submit to what it described as blackmail from the United States. In this context, Tony Sycamore, a market analyst at IG, noted that the increase in tariffs could lead to a decline in risk sentiment. He said, “If China remains firm, the total tariff rate imposed on its imports into the United States will reach 104%, which could increase financial market volatility and accelerate the global economy’s acceleration toward recession.”
A preliminary Reuters poll on Monday indicated that US crude and distillate inventories are expected to rise by about 1.6 million barrels. This indicates that the market anticipates weaker oil demand in the near future.
Global Production Forecast:
Oil markets anticipate additional challenges to global production with the OPEC+ group announcing plans to increase production. The group, which includes the Organization of the Petroleum Exporting Countries (OPEC) and its allies, is gradually increasing production. In May, OPEC+ plans to return 411,000 barrels per day to the market, up from the initially planned 135,000 barrels per day.
Over the weekend, OPEC+ ministers emphasized the need for full compliance with agreed-upon production targets and called on producers pumping above their agreed-upon quotas to submit plans to compensate for the excess by April 15.
The Future in Light of Trade Escalation:
The future is expected to witness further volatility in oil markets if the trade escalation between the United States and China continues. If the trade war continues to escalate, it will directly impact global economic growth. The mutual tariffs between the two countries could lead to a decline in global trade volume, further pressuring oil demand.
The trade escalation could also lead to increased uncertainty in financial markets. Investors may experience severe volatility in stock and commodity markets, including oil.If authorities impose further tariffs on Chinese or US imports, businesses and consumers will face higher costs, leading to reduced energy consumption and lower demand levels.
Increased Production and Its Impact on Prices:
Under these circumstances, oil-producing countries, such as OPEC+, will seek to adjust their production strategies. Although production will likely increase in the coming months, this could pose significant challenges to the oil market. If major countries like the United States continue to raise tariffs, increased production could lead to a supply surplus, putting pressure on oil prices.
In addition, production policy in oil markets will continue to influence crude prices in the short and long term. Increased supply from OPEC+ countries could lead to lower prices.
Impacts on Large Companies:
Global companies that rely on oil imports will find themselves facing increasing challenges. As costs rise due to tariffs, profits for companies operating in the energy and heavy industries sectors may decline. Consumers will also suffer from higher commodity prices, creating additional pressure on the global economy.
At the same time, major energy companies may face pressure to adjust their production strategies and expand into other markets to mitigate the effects of tariffs. In this context, companies will have to adapt to global trade dynamics and alter their business paths to achieve sustainable profitability.
Long-term impacts on economic growth:
In the long term, the trade war could slow economic growth in many countries. If the escalation between the United States and China continues, major economies could experience contraction in multiple sectors, such as manufacturing and services. This slowdown in growth will impact global demand for oil and increase instability in the global economy.
