Oil dives 7% to lowest in over three years on China's tariffs

07/04/2025 02:49 AST

Oil prices plunged 7% on Friday to settle at their lowest in over three years as China ramped up tariffs on US goods, escalating a trade war that has led investors to price in a higher probability of recession. China, the world's top oil importer, announced it will impose additional tariffs of 34% on all US goods from April 10, noted Al-Attiyah Foundation in its Weekly Energy Market Review.

Nations around the world have readied retaliation after Trump raised tariff to their highest in more than a century. Commodities including natural gas, soybeans and gold also dived, while global stock markets tumbled. Global benchmark Brent futures settled $4.56, or 6.5%, lower at $65.58 a barrel, while US West Texas Intermediate crude futures lost $4.96, or 7.4%, to end at $61.99.

For the week, Brent was down 10.9%, its biggest weekly loss in percentage terms in a year and a half, while WTI posted its biggest decline in two years with a drop of 10.6%.

Trump's new tariffs are "larger than expected" and the economic fallout, including higher inflation and slower growth, likely will be as well, Federal Reserve Chair Jerome Powell said in remarks that pointed to the potentially difficult set of decisions ahead for the US central bank.

Further pressuring oil prices, the Organization of the Petroleum Exporting Countries and allies (OPEC+) decided to advance plans for output increases. The group now aims to return 411,000 barrels per day to the market in May, up from the previously planned 135,000 bpd.

Asian spot LNG prices remained at their lowest level in nearly six months on Friday as US President Trump's "liberation day" tariffs pulled global markets down amid fears of a global recession. The average LNG price for May delivery into north-east Asia remained unchanged from last week at $13.00 per mmBtu.

China announced additional tariffs of 34% on US goods on Friday, the most serious escalation in a worsening trade war between Beijing and Washington. The widely shared opinion is that this will harm global trade and industrial production, reducing the demand for LNG even further, analysts said.

In Europe, Dutch and British gas prices plunged to their lowest level in over six months on Friday afternoon in line with sharp declines in oil and stock markets.

Hedge funds with exposure to both commodities and equities sold gas heavily on Thursday to de-risk their portfolios, with oil and equities also falling.

The European Union, which is facing 20% tariffs, is preparing for countermeasures in response to Trump's duties, but analysts said Europe has no choice but to keep importing US LNG, ruling out that retaliatory tariffs would cover the commodity.

An indirect effect of the tariffs was a weakening of the dollar against other currencies, meaning US LNG cargoes are quickly becoming cheaper compared to other origins, increasing the incentive for Europe to buy more US LNG in the coming months.

The Peninsula