Crude oil is set to end another week with substantial losses as markets reel from President Trump’s tariff offensive, despite the fact he pulled the punch at the last second. With one notable exception: China. As Beijing and Washington take turns to up the ante, the outlook for oil and energy in general has gone from bright to really dim.
Brent crude is about to end this week relatively unchanged but down by $6 per barrel from a month ago. West Texas Intermediate has slipped below $60 per barrel and might spend some time there. The drop is all a result of the sudden change in the outlook for oil demand—because of Trump’s tariff war.
“We are going into a recession,” Renaissance Macro Research’s head of economic research, Neil Dutta, wrote in a note cited by Bloomberg. “I don’t think it is especially controversial to say so.” The statement sums up the dominant sentiment among economic forecasters as well as, it seems, the majority of market players. Warnings of a recession have multiplied at bacterial-growth speed, and now even the Energy Information Administration at the U.S. Department of Energy is warning of the negative impact that the tariff war would have on oil demand.
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Bloomberg noted that oil prices have been trending down since Trump took office. At the time, the reason was the overwhelming expectation that the new U.S. president would somehow convince oil and gas producers to boost output even faster than they were already. When the industry made clear it had no intention of doing so, attention turned to Trump’s trade policies, which were a lot more controversial than his “Drill, baby, drill” dream.
The logic of all the warnings and all the grim demand predictions is simple enough: tariffs would supercharge inflation, leading to an overall drop in spending. This, in turn, would destroy oil demand. The basis of that argument is sound—which is why Trump took all the forecasters by surprise when he instituted a 90-day pause on the massive tariffs he had announced earlier in the week in anticipation of their eagerness to negotiate new trade deals with the United States. The risk of a deep global recession just became a lot smaller.
However, the tariff exchange between the U.S. and China has not stopped. A series of retaliatory tariff announcements had Trump in the lead with a tariff total of 145% on Chinese imports. China first raised the tariff to 85%, but has since upped its game and is now trailing him with a grand total of 125%. While traders and analysts processed the exchange, some observers were quick to comment that either Trump or China blinked first after both sides signaled they were open to a trade deal to replace the tariff race to the bottom. Trump himself said he would love to do a deal with Beijing. Beijing, for its part, said that it was open to negotiations, but they had to be based on mutual respect.
This suggestion that the two sides were open to negotiations has done nothing for oil prices—yet. And there is a reason for that. China has been reducing its intake of U.S. crude since January when Trump took office. Indeed, U.S. oil exports to China have shrunk considerably since the start of 2025, amounting to just 1% of total oil imports by the world’s second-largest consumer. It bears noting that the U.S. has never been a top supplier of oil to China, with the 2024 total at a little over 200,000 barrels daily. Still, any negative trends in imports are inevitably going to affect prices, which is exactly what these trends did.
“With China imposing 84% tariffs on goods from the US, the cost of US crude would be almost double — $51 a barrel more expensive, based on $61 WTI,” Ivan Mathews, head of APAC analysis for Vortexa, told Bloomberg this week. “This makes running US crude uneconomical for Chinese refiners.”
This is not good news for U.S. producers, even though they were not shipping millions of barrels of crude to China. The oil market these days runs on perceptions rather than hard data, and the perception is that the tariff war is killing oil demand, so the outlook for oil demand is dimming. It may not remain dim for long, though.
“I’m sure that we’ll be able to get along very well,” President Trump said on Thursday, referring to his Chinese counterpart Xi Jinping. “In a true sense he’s been a friend of mine for a long period of time, and I think that we’ll end up working out something that’s very good for both countries,” Trump said, quite likely creating some confusion among followers of current political events.
If both sides in a tariff spat are willing to end the spat with a deal, then this greatly improves the chances of such a deal being done. If such a deal is indeed done, fears of a global recession and market crashes should dissipate—and so should any major worries about oil demand. If it takes nothing less than a global recession to stem growth in oil demand, then it’s safe to say that demand is quite solid.
By Irina Slav for Oilprice.com
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