The global oil market experienced significant turmoil over the past 24 hours, with crude prices plummeting to their lowest levels in months following a double shock of OPEC+ supply increases and Trump’s tariff announcements.
As of this morning, WTI crude is trading at $66.20 per barrel, continuing its downward trajectory with a loss of 0.245 (-0.37%) in early trading.
Brent crude futures fell dramatically by $5.04 or 6.72% to $69.91 per barrel in Thursday’s trading, marking its worst percentage drop since August 2022. Similarly, U.S. West Texas Intermediate (WTI) crude futures plunged by $5.13 or 7.15% to $66.58.
This morning, prices remain under pressure with WTI continuing to trade below $67 a barrel. The magnitude of yesterday’s sell-off represents the steepest percentage loss for oil since 2022, shocking market participants who had anticipated more stable conditions.
Key Market Drivers
OPEC+ Output Surprise
In an unexpected move that rattled markets, eight OPEC+ nations agreed to increase oil production by 411,000 barrels per day (bpd) in May, significantly higher than the anticipated 135,000 bpd increase. This decision effectively consolidates three months’ worth of planned hikes into a single month.
The countries involved – Russia, Saudi Arabia, UAE, Kuwait, Iraq, Algeria, Kazakhstan, and Oman – are accelerating the unwinding of their recent 2.2 million bpd production cut that began this month. As one delegate described it, this represents “a deliberate effort to drive down prices to punish the group’s cheats”.
Trump’s Tariff Shock
Adding to market pressures, U.S. President Donald Trump announced sweeping new import tariffs on Thursday, including:
- A 10% baseline tariff on all imports into the United States
- Additional “discounted reciprocal tariffs” on major trading partners
While imports of oil, gas, and refined products would be exempt from these tariffs, markets still reacted negatively to concerns about potential global economic slowdown.
Inventory Build
U.S. crude inventories unexpectedly rose by 6.2 million barrels last week, contrary to analysts’ predictions of a 2.1 million barrel decrease, according to the Energy Information Administration. This surprise build exacerbated concerns about oversupply.
Market Analysis
The oil market is currently caught between supply and demand concerns. On the supply side, the accelerated OPEC+ production increase signals a potential oversupply situation.
OPEC+ officials indicated the decision aims to “maintain credibility in the group’s quota system,” particularly targeting members who have been producing above their quotas.
“OPEC+ is focused on compliance, and this decision compels the lagging countries to improve their adherence,” noted Rita Sen, co-founder of Energy As.
On the demand side, Trump’s tariff announcements have stoked fears of reduced global economic activity. “We understand that this will negatively impact trade, economic growth, and consequently, oil demand growth.
However, the extent of the impact remains uncertain as the repercussions will unfold over time,” explained Bjarne Schieldrop, chief commodities analyst at SEB.
Technical Analysis
From a technical perspective, the chart shows WTI crude has broken significantly below its moving averages with sharp bearish momentum. The price action displays a dramatic fall from the $72-73 range to current levels around $66.20.
All major moving averages have turned downward, with prices trading well below the Bollinger Bands, suggesting extreme oversold conditions.
The momentum indicator in the lower panel shows deeply negative territory, reinforcing the strong bearish sentiment. Support levels currently appear to be forming around $66.00, with next major support potentially at the $65.00 psychological level.
Impact on Energy Stocks
Oil-linked stocks traded mixed across global markets in response to the crude price collapse:
- State-run upstream oil explorers like Oil India Ltd. and ONGC declined up to 6% as falling crude prices adversely impact their margins
- OMC performances were mixed, with Bharat Petroleum shares up 2.6% while Indian Oil Corporation and Hindustan Petroleum shares declined
- U.S. energy sector stocks experienced significant pressure in Thursday trading
- Paint, aviation, and tire stocks showed varied responses to the oil price movement
Global Market Response
Wall Street led a global market sell-off on Thursday as countries worldwide reacted to Trump’s trade tariffs. The oil price collapse added to market anxiety, with one analyst noting, “Obviously, there’s a lot of fear and moaning this morning”.
Republican Senator Mitch McConnell broke ranks with Trump, criticizing the tariffs as “bad policy” and stating, “Preserving the long-term prosperity of American industry and workers requires working with our allies, not against them”.
Outlook
The oil market remains volatile heading into the weekend. Traders will be closely monitoring:
- Further developments in Trump’s tariff implementation
- OPEC+ member compliance with the new production targets
- Economic data that could signal changes in oil demand
- Potential countermeasures from trading partners affected by U.S. tariffs
As both supply and demand uncertainties persist, traders should prepare for continued volatility in the coming sessions.