Oil prices plunged to their lowest levels in over four years on Wednesday, driven by escalating trade tensions and an unexpected surge in supply from Opec+, the alliance of major oil-producing countries. Brent crude, the international benchmark, dropped as much as 5.2%, hitting $58.46 per barrel and falling below the $60 mark for the first time since February 2021.
The dramatic decline in oil prices was exacerbated by growing concerns that US President Donald Trump’s global tariffs, introduced on April 2, would dampen global economic growth and reduce demand for energy. At its lowest point, Brent crude had fallen nearly 20% from the level it was at when the tariffs were first announced.
The US benchmark, West Texas Intermediate (WTI), also saw a significant drop, falling as much as 5.3% to $55.10 before rebounding to $62, ending the day up 4%. By the close of trading, Brent crude had climbed to $64.82, a 3.5% increase, following President Trump’s unexpected decision to delay tariff increases for 90 days, excluding China.
In addition to the trade tensions, oil prices were pressured by a larger-than-expected production increase from Opec+. The group, which includes key players like Saudi Arabia, Russia, and Iraq, announced a production boost of 411,000 barrels per day starting in May, well above the 135,000 barrels per day analysts had anticipated.
This combination of weaker demand expectations due to tariffs and rising supply led major banks to downgrade their oil price forecasts. Goldman Sachs revised its year-end forecast for Brent crude to $58 per barrel, with a further decrease to $51 by the end of next year. Morgan Stanley also lowered its outlook, cutting its Q2 Brent forecast to $65 per barrel and its forecast for Q3 and Q4 to $62.50. The bank also revised its oil demand forecast for the second half of the year, reducing it by 500,000 barrels per day.
Francisco Blanch, Head of Commodities Research at Bank of America, warned that Brent crude could potentially fall to $50 a barrel in a worst-case scenario. However, he added that any easing of trade tensions or geopolitical risks could help stabilize prices.
The drop in oil prices has fueled speculation about falling fuel prices for consumers. Simon Williams, head of policy at the RAC, noted that wholesale fuel costs were “falling fast,” and retailers would likely begin lowering pump prices later this week as they replenish stock.
Despite the declining oil prices, the average petrol price has remained steady at 135.6p per litre, while diesel prices have remained unchanged at 142.3p, according to figures from the AA.
Luke Bosdet, a fuel spokesman at the AA, cautioned that falling oil prices might take some time to reflect at the pump, especially with the start of the US summer driving season, which typically sees an increase in gasoline demand and prices. He added that significant price reductions may not occur until later in the summer when demand begins to ease.
Analysts also warned that rising operational costs, such as increased employer national insurance contributions and the national living wage, could limit how much of the savings from lower oil prices are passed on to UK consumers.
While the markets responded positively to the temporary de-escalation of trade tensions, the energy sector remains wary. With rising supply and increasing economic uncertainty, the volatility in oil markets is expected to persist.
