Oil Prices Crash as OPEC+ Supply Surge and Tariff War Shake Markets
Crude oil prices are tumbling, with WTI crude (CL=F) slipping to $68.09 and Brent (BZ=F) hitting a six-month low of $70.87 as the oil market absorbs a double blow: OPEC+ raising production and an escalating trade war between the U.S. and China. The cartel has officially ended its output curbs, adding 138,000 barrels per day (bpd) in April, while geopolitical risks and economic uncertainty further weigh on sentiment.
At the same time, U.S. tariffs on Mexican and Canadian crude imports took effect on Tuesday, imposing a 10% levy on Canadian crude and 25% tariffs on Mexican oil. This is expected to drive up U.S. gasoline prices by 2-3%, but the larger concern is a potential global demand slowdown if trade war fears intensify.
OPEC+ Decision Triggers Market Selloff
Oil prices had been stabilizing around the $74-$76 range, but OPEC’s surprise move to increase production sent shockwaves through the market. Brent crude has lost $4 per barrel this week alone, with traders fearing that the cartel’s move will flood the market with excess supply.
Saudi Arabia and the UAE pushed for the production hike, despite opposition from Russia and Iraq, who wanted to delay increases until the second half of 2025. With demand from China weakening, this decision has only deepened fears of an oversupplied market.
OPEC+ has already increased 320,000 bpd in February, with Iraq leading the charge by pumping 4.16 million bpd—surpassing its agreed 4 million bpd target. Libya, Venezuela, and the UAE have also ramped up production, which further intensifies downward pressure on oil prices.
U.S.-China Trade War Escalates: A Demand Risk for Oil?
The trade war between the U.S. and China has intensified, adding a new layer of uncertainty to global energy markets. President Trump has now raised tariffs on Chinese goods to 20%, while China has responded with a 15% tariff on U.S. agriculture and energy products.
The market is now pricing in the possibility that China’s crude oil imports may fall, given that Beijing has placed 25 U.S. firms on its export control list. This raises serious concerns over Chinese energy demand, which has already been declining due to weak manufacturing growth.
Speculators have taken notice. Hedge funds have increased short positions on WTI crude by 20% week-over-week, betting that prices will fall further. Long positions, on the other hand, have remained unchanged at 330,000 contracts, showing that bullish sentiment is evaporating.
U.S. Oil Production and Refinery Shutdowns: A Supply Shock Ahead?
While OPEC+ is raising supply, the U.S. is facing its own set of supply concerns. Refinery shutdowns in Houston and Los Angeles could cut 400,000 bpd from U.S. fuel production, according to the Energy Information Administration (EIA).
The Phillips 66 refinery in Los Angeles and the LyondellBasell refinery in Houston are both shutting down operations, which could tighten U.S. gasoline and diesel supply. However, the impact is likely to be offset by increased Canadian imports, even with the new 10% tariff on Canadian crude.
Additionally, the U.S. has ended Chevron’s license to operate in Venezuela, cutting off a key supplier of heavy crude for Gulf Coast refiners. This means that while global crude supply is rising, U.S. refiners may struggle to secure feedstock, which could increase refining costs and fuel prices in the coming months.
Russia and the Potential for Eased Sanctions: A Wild Card for Oil
Further complicating the supply outlook is speculation that the U.S. may ease sanctions on Russian oil exports. Reports suggest that Washington is considering lifting certain trade restrictions, which could unlock millions of barrels of Russian crude and add to the global supply glut.
Currently, Russia’s oil flows are constrained more by OPEC+ quotas than U.S. sanctions, according to Goldman Sachs analysts. If sanctions are eased, however, it could push oil prices even lower, as more barrels enter the market.
Technical Outlook: Will WTI Crude (CL=F) Break Below $68?
From a technical perspective, oil prices are at a critical level. WTI crude (CL=F) has dropped below its key support level at $68, with the next major downside target at $66.77—the lowest since November 2024.
Brent crude (BZ=F) is also testing a key level at $70.87, with further downside possible if market sentiment remains bearish. The RSI (Relative Strength Index) is showing oversold conditions, suggesting a possible short-term rebound, but the broader trend remains firmly bearish.
For WTI to regain bullish momentum, it would need to close above $72, which could trigger a reversal toward $74-$76. However, as long as oil remains below $70, traders will continue to sell into rallies, expecting further downside.
Will Oil Prices Recover or Fall Further?
The fundamental backdrop for oil remains weak, with OPEC+ supply increases, trade war risks, and demand concerns all weighing on crude. While short-term bounces are possible, the overall market structure favors lower prices unless demand surprises to the upside.
For now, WTI (CL=F) remains vulnerable to further losses, and a break below $68 could send crude tumbling toward $66. Brent crude (BZ=F) also faces downside risk toward $69, unless geopolitical tensions or supply disruptions trigger a rebound.
With OPEC+ adding barrels, the U.S. imposing tariffs, and global demand softening, crude oil is at a crossroads. Will WTI (CL=F) and Brent (BZ=F) find support, or is oil headed for a deeper correction?
