Oil prices faced downward pressure as Brent dipped over 5% to $62.5 per barrel, its lowest level in four years. WTI also decreased to $59 per barrel, while gasoil fell below $600 per tonne, marking a first since late 2021.
Since the announcement of tariffs by Trump, oil prices have decreased by over 16%. Concerns about a global recession due to the trade war are expected to slow down oil demand, particularly in China, where exceptionally high tariffs may result in weaker consumption.
saudi arabias pricing strategy
Saudi Arabia has cut its official selling prices for Asia by $2.3 per barrel, the largest reduction in two years, reflecting decreased demand. Increased production levels from May are reportedly being sold at more substantial discounts, contrary to market expectations of a smaller price reduction.
This recent turn in oil prices, now markedly lower across the board, reveals a sharp shift in market sentiment, driven largely by deteriorating expectations for global demand. Brent falling over 5% to levels not seen since 2019 and WTI reaching $59 per barrel indicates a swift repricing of risk in energy markets. Gasoil’s slide beneath $600 per tonne underscores soft demand across refined products too, not just in the crude complex.
The tariffs announced by the U.S. administration have amplified market anxiety. Over a 16% drop in crude since the announcement is not trivial—it reflects a deterioration in short-term demand assumptions as global manufacturing and consumption prospects wane. What’s particularly worth noting is how sharply China-specific demand concerns are coming through. The expected hit to consumption, primarily due to sharply increased tariffs on raw materials and finished goods, has market participants reassessing forward hedging activity.
Meanwhile, Aramco’s move to cut its official selling price to Asia by $2.3 per barrel was not only larger than anticipated but also strategically timed to retain market share. It’s rare to see such a large reduction outside of broader market resets, and for this to occur alongside already deepening discounts on excess May volumes implies Saudi producers are seeing something soft in their forward order books. It’s a price war shift, not a typical seasonal adjustment.
changing market dynamics
We must consider how these developments adjust commercial positioning going forward. Higher volatility in the outright curve, combined with such aggressive discounting by producers, means there’s a probability of contango conditions persisting across both Brent and WTI curves, especially if refinery margins stay compressed. Spreads narrowing would pressure front-month contracts and make rolling positions costlier—even unattractive—for length holders.
For us, the pricing shift calls for tightening delta exposure on long-dated contracts unless there’s a compelling structural reason to remain committed. Short-term bearish flows, particularly from macro funds repositioning on recession cues, are likely to keep both implied and realised volatilities elevated. That gives room for strategic gamma plays if option premiums reprice slower than the move in spot.
One must be selective with strike ranges. This isn’t a market where aggressive front-loaded positioning serves well. Instead, place focus on longer-dated vol opportunities where skew has dislocated—higher puts are widening more than the historical norm, offering favourable asymmetry to the downside while letting vega remain active.
Watching calendar spreads closely is also warranted. We anticipate time spreads to come under pressure, particularly in the autumn delivery months, unless inventories draw down faster than forecast. Any material build in U.S. or Chinese strategic reserves may mitigate that, but buying appetite has throttled back under current diplomatic and tariff tensions.
As market liquidity thins during regional holidays, short-covering rallies shouldn’t be chased. Rather, use them to consider rebalancing exposure or taking profit where technical levels meet decaying fundamental support. We are seeing large clip trades trigger stops more regularly, particularly in Brent, where open interest has been rotating towards shorter maturities. That typically signals uncertainty about macro flows.
There’s a watchful eye on Asian refiners at the moment too. Margins are compressing sharply, and delayed loadings from the Middle East create concern over regional storage capacity. This may, in the coming sessions, drive further weakness in cracks, especially if run rates tick down and product inventories start to build, particularly for diesel.
Keep tracking freight differentials. The arbitrage economics between east and west might swing if vessel booking rates diverge from refinery output levels. That impacts the prompt structure and where physical barrels ultimately flow.
We need to treat these weeks with discipline—pricing is adjusting quickly to economic signals, and speed of movement often outpaces fundamentals. Risk management will be paramount until greater clarity returns.
