On Thursday, crude oil futures experienced their largest drop in almost three years. This downturn was fueled by worries over reduced demand caused by U.S. tariffs and further intensified by OPEC+'s unexpected decision to hasten the release of previously held-back output, causing significant turbulence throughout the oil market.
President Trump's series of tariff increases is intensifying uncertainties regarding the future of the worldwide economy. Although the administration avoided steps that would have immediately impacted oil markets—like restrictions on imports from Canada and Mexico—the fear that the trade conflict could reduce overall global energy consumption has driven down prices significantly.
Next, OPEC along with its partners surprisingly announced they would reintroduce 411 thousand barrels per day into the global market beginning the following month—a move equal to three months' worth of production hikes condensed into one step—citing “robust market conditions” and an optimistic forecast for the markets. This represented a significant change from their previous strategy of maintaining tight supplies over several years, which had helped bolster oil prices.
The cartel was set to increase production by 135 thousand barrels per day in May as part of an effort to slowly reverse previous reductions amounting to 2.2 million barrels per day.
Tomas Varga from PVM Oil Associates stated that the ideal recipe for a downturn has been concocted both in Washington and Vienna regarding these dual actions. The mutual tariffs imposed on nearly all significant US trade partners understandably heighten concerns about an economic slowdown and potentially even stagflation. This situation negatively affects economic and oil demand expansion.
UBS analysts noted that the OPEC+ choice to increase output beyond what was anticipated poses a downward threat to crude prices. Additionally, they pointed out that the adverse impact on worldwide economic expansion due to U.S. tariffs might reduce oil demand growth by 250K-500K barrels per day—"nearing half of our projected 1.1 million barrel per day growth estimate for 2025 at the higher end," as stated by them. They concluded that these factors together create significant downside risks for crude oil prices within the lower portion of the $55-$75/barrel WTI price range.
Citi Research provided a more optimistic outlook, keeping their Q2 Brent price prediction at $68 per barrel. They stated, "These severe trade tariff issues emerge as macroeconomic strength is already weakening... However, sanctions on Iranian, Venezuelan, and ultimately Russian crude imports help reduce supply, thus counterbalancing the effects of merchandise tariffs."
Moreover, impacting market mood, statistics from the U.S. Energy Information Administration indicated an increase in U.S. crude stocks. rose unexpectedly by a significant margin of 6.2 million barrels Last week, in contrast to expectations of a significant decrease.
Front-month Nymex crude ( CL1:COM ) completed for delivery in May -6.6% to $66.95/bbl, and the front-month June Brent crude CO1:COM ) ended -6.4% to $70.14/bbl, The smallest settlement values for both indices since mid-March and the most significant single-day drop in percentages for both since July 12, 2022.
ETFs: ( NYSEARCA: USO ), ( BNO ), ( UCO ), ( SCO ), ( USL ), ( DBO ), ( DRIP ), ( GUSH ), ( USOI ), ( NYSEARCA: XLE ), ( XOP )
Shares of energy companies suffered significant losses, with U.S. producers, pipeline firms, and oil service businesses all seeing sharp declines. This included the biggest 10 energy entities measured by market capitalization such as Exxon Mobil. XOM ) -5.2% , Chevron ( CVX ) -6.2% , ConocoPhillips ( COP ) -10.2% , Enterprise Products Partners EPD ) -1.7% , Williams Companies ( WMB ) -4.2% , EOG Resources ( EOG ) -7.7% , Kinder Morgan ( KMI ) -4.1% , Energy Transfer ( ET ) -6.3% , SLB ( SLB ) -7% , Oneok ( OKE ) -7.6% .
Also falling among the day’s major decliners was Patterson-UTI Energy ( PTEN ) -19% , Liberty Energy ( LBRT ) -18.4% , APA Corp. ( APA ) -16.5% , Helmerich & Payne ( HP ) -15.2% , Valero Energy ( VLO ) -14.4% , Nabors Industries ( NBR ) -14.4% , Valaris ( VAL ) -13.9% , Transocean ( RIG ) -13.9% , Phillips 66 ( PSX ) -13.6% , Marathon Petroleum ( MPC ) -13% , Halliburton ( HAL ) -12.8% , Noble Corp. ( NE ) -12.8% , Diamondback Energy ( FANG ) -12.5% , Devon Energy ( DVN ) -12.5% , Texas Pacific Land ( TPL ) -12.2% , Ovintiv ( OVV ) -11.5% , Occidental Petroleum ( OXY ) -10.9% , Hess ( HES ) -7.2% .
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