The Trade War Triggered by Trump's Tariffs is Escalating, Causing Oil Prices to Drop to Their Lowest Level Since 2021

On Monday (7/4/2025), the price of crude oil dropped by more than 2%, reaching its lowest point in nearly four years. This decrease was caused by worries about potential import taxes that could be imposed by US President Donald Trump. These taxes might lead to a worldwide economic downturn and a decrease in global energy demand.

A report from Reuters on Tuesday (8/4) stated that Brent crude oil prices ended the day down by US$1.37 or 2.1% at US$64.21 per barrel. Similarly, the price of US West Texas Intermediate (WTI) crude oil also fell by US$1.29 or 2.1% to US$60.70 per barrel.

Both types of oil had experienced an 11% decline the week before and are currently at their lowest levels since April 2021.

Trading is ongoing with high fluctuations. Prices have dropped by more than US$3 before rebounding by more than US$1 on Monday morning. This was after reports surfaced that Trump was considering imposing a 90-day tariff pause. However, market optimism was immediately dampened after the White House denied the news.

Tensions in the trade conflict escalated further after China announced retaliatory tariffs of 34% on US products. Trump also responded by threatening to impose additional tariffs of 50% if China did not revoke its retaliatory policy. In addition, Trump also stated that all talks with Beijing would be halted.

Reaction also came from the European Union. The European Commission proposed imposing counter-tariffs of 25% on a number of US goods in response to Trump's steel and aluminum policies, as revealed in documents seen by Reuters.

The market experienced a downturn due to pessimism following Goldman Sachs' revision of its oil price forecast and its prediction of a 45% chance of a recession in the US within the next year. Similarly, other major financial institutions like Citi, Morgan Stanley, and JPMorgan also adjusted their Brent price projections downwards, with JPMorgan going as far as to suggest a 60% probability of a global recession.

In the midst of this uncertain economic climate, Federal Reserve Governor Adriana Kugler issued a cautionary statement, highlighting that the recent uptick in prices of goods and services could be an early indication of the impact of government policies. Kugler stressed the critical importance of maintaining control over inflation as a key priority for the Federal Reserve.

The increase in interest rates as the main tool to control inflation also brings new risks: burdening loan costs and slowing down oil demand and economic growth rate.

On Sunday, Saudi Arabian producers reacted by significantly cutting the selling price of crude oil for the Asian market to the lowest level in four months for May delivery. According to PVM analyst Tamas Varga, this price drop sends a strong signal that Saudi Arabia sees Trump's tariffs as a factor that will suppress oil demand.

The statement suggests that Saudi Arabia, similar to other participants in the market, foresees disturbances in the equilibrium between supply and demand. Additionally, the OPEC+ coalition has chosen to expedite the rise in production. As part of this decision, the alliance aims to boost supply by 411,000 barrels per day beginning in May, a significantly higher quantity compared to the initial plan of 135,000 bpd.

During the weekend, OPEC+ ministers highlighted the significance of adhering to production quotas and called on members exceeding their limits to present compensation plans by April 15th at the latest.