Crude oil is on track to end another week in the red, battered by mounting fears over the global economic fallout from President Donald Trump’s aggressive tariff campaign—despite a partial retreat from the brink. The single exception in the worsening trade climate appears to be China, as the U.S. and Beijing continue to escalate retaliatory tariffs, plunging the outlook for oil demand into uncertainty.
Brent crude is set to close the week relatively flat but has shed $6 per barrel over the past month. West Texas Intermediate (WTI) has slipped below the key $60 per barrel threshold and appears likely to remain there in the short term. The driving force behind this downturn is a rapid deterioration in oil demand expectations, triggered largely by the deepening U.S.-China trade war.
“We are going into a recession,” warned Neil Dutta, head of economic research at Renaissance Macro Research. While stark, Dutta’s sentiment is increasingly shared by economists and market participants alike. Warnings of a recession have multiplied dramatically, and now even the U.S. Energy Information Administration is cautioning that the tariff conflict could significantly erode global oil demand.
Oil prices have been under pressure since Trump assumed office. Initial market concerns centered on the belief that Trump would push U.S. producers to ramp up output even further. When that didn’t materialize, attention shifted to his protectionist trade agenda—one that has proven more disruptive than his initial promises of energy expansion.
The logic underpinning these dire predictions is straightforward: tariffs drive up consumer prices, which stifles spending and, in turn, dampens oil demand. These fears intensified earlier in the week when Trump unveiled sweeping new tariffs, only to soften his stance with a 90-day pause, catching many market observers off guard. While the temporary delay eased recession fears slightly, the broader trade tensions remain unresolved.
China, which has been a central figure in this economic standoff, continues to engage in tit-for-tat tariff hikes. Trump currently leads with tariffs totaling 145% on Chinese imports, while Beijing has responded with 125% in return. Despite both sides signaling a willingness to negotiate, the markets remain skeptical. Trump stated he is eager to strike a deal with China, and Beijing has echoed that sentiment—though with the caveat that talks be based on mutual respect.
The suggestion of diplomatic progress has so far failed to lift oil prices. One reason: China has been scaling back imports of U.S. crude since January, the month Trump began his second term. U.S. oil exports to China have dropped dramatically, now representing just 1% of the country’s total oil imports. Although the U.S. has never been a dominant supplier for China, the decline underscores growing tensions and their ripple effects on global markets.
“Running U.S. crude is no longer economically viable for Chinese refiners,” said Ivan Mathews, head of APAC analysis at energy intelligence firm Vortexa. With China imposing tariffs as high as 84% on U.S. goods, American crude is now up to $51 more expensive per barrel compared to the WTI benchmark—essentially pricing it out of China’s market.
This presents a troubling scenario for U.S. oil producers. While they never exported massive volumes to China, today’s oil markets often respond more to sentiment than to supply data. And right now, the prevailing sentiment is one of fear—fear that the trade war is suffocating global oil demand.
Still, there may be a silver lining. In a press briefing Thursday, Trump said of Chinese President 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.” The comments, while optimistic, added to the confusion around the U.S. administration’s trade strategy.
If both sides ultimately reach a deal, it could dramatically shift the global economic outlook. Fears of recession and crashing markets would likely recede, and with them, concerns about falling oil demand. Until then, energy markets are left to navigate a volatile trade environment where perception drives pricing.
As analysts continue to monitor every twist in the U.S.-China standoff, one truth remains: if it takes a global recession to halt oil demand growth, then global oil demand may be more resilient than many fear.