Oil at 2021 Lows Amid Pending Global Trade War

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--What could be the start of an all-out global trade war pushed U.S. crude oil prices to levels not seen since the pandemic after the Organization of Petroleum Exporting Countries (OPEC) opted to raise production and China hit back hard against U.S. President Donald Trump's trade policies.

China on Friday said it would impose a 35% tariff on products imported from the United States on April 10, mirroring U.S. tariffs on imports from the world's second-largest economy. The official Xinhua News Agency cited a statement from the Customs Tariff Commission that said the announcement was in response to so-called reciprocal tariffs imposed by the United States.

The commission said the U.S. tariff policies are self-defeating, but also jeopardize global economic development. Trade disputes, the commission added, should be resolved through diplomatic means.

Embracing a 1930s-era trade policy that emphasized tariffs as a way to bring in more federal revenue, Trump on Wednesday announced a blanket 10% tariff on imports, though reciprocity means some countries will face more.

Since December, before his formal return to office, Trump has threatened stiff tariffs on North American trading partners as well. Canada and Mexico account for 70% of all the crude oil imported by the U.S. economy, though Trump ultimately opted to spare energy in his tariff agenda.

That, however, removed a premium that supported crude oil prices amid signs of a faltering economy. West Texas Intermediate (WTI), the U.S. benchmark for the price of oil, closed down 6.6% in Thursday trading to settle at $66.95 per barrel. By Friday morning, the contract was down another 7.6% to move toward $61 per barrel.

April 2021, about one year into the COVID-19 pandemic, was the last time WTI was that low.

The situation was compounded by a decision from OPEC+, the core members of OPEC and allies such as Russia, to collectively increase production by 411,000 barrels per day starting next month.

"The market is now reckoning on the cork being out of the production bottle and believes, as we do, that it will not be pushed back in," John Evans, an analyst at London oil broker PVM, wrote in a Friday newsletter.

Lower-for-longer prices, however, could put a limit on how much oil comes back to the market. Even before the tariff announcement from the Trump administration, representatives from the upstream oil and gas business expressed irritation with his trade policies.

"The administration's chaos is a disaster for the commodity markets," one respondent told the Federal Reserve Bank of Dallas.

Kristalina Georgieva, the managing director of the International Monetary Fund, doubled down on the criticism on Thursday, saying U.S. trade policy represents a "significant risk" to the global economy at a time when growth is already subdued.

"It is important to avoid steps that could further harm the world economy," she said. "We appeal to the United States and its trading partners to work constructively to resolve trade tensions and reduce uncertainty."

On Thursday, U.S. Sen. Chuck Grassley (R-Iowa) introduced bipartisan legislation alongside Sen. Maria Cantwell (D-Wash.) that would "restore" congressional authority over U.S. trade policy. The so-called Trade Review Act of 2025 would require congressional consent for tariffs.

"For too long, Congress has delegated its clear authority to regulate interstate and foreign commerce to the executive branch," Grassley said. "Building on my previous efforts as Finance Committee chairman, I'm joining Senator Cantwell to introduce the bipartisan Trade Review Act of 2025 to reassert Congress' constitutional role and ensure Congress has a voice in trade policy."

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