Oil prices experienced their worst week since October 2023, primarily due to US tariffs and China’s 34% tariff on US imports. ICE Brent crude fell nearly 11% to mid-$60s, with further declines in early trading.
The surprise of the tariffs and OPEC+ decisions led to a rapid sell-off. Speculators had increased their net long positions in ICE Brent by 56,112 lots to a total of 318,182 lots before the tariff announcement.
Market Conditions and Demand
Current market conditions suggest a demand reduction of around 1 million barrels per day for the rest of the year, leaving demand flat year-on-year. A slowdown in US drilling activity is anticipated, with producers needing an average of $65 per barrel to profitably drill, while prices hover just above $60.
With the drop in oil prices last week—marking the worst decline since late 2023—it’s clear the market was not braced for the dual forces of trade tensions and recalibrated output agreements. The tariff shocks, particularly from Beijing’s 34% duty on American crude imports combined with the new Washington restrictions, caught positioning offside. This saw holders of long oil contracts swiftly exiting, with Brent tumbling close to the mid-$60s and touching even lower in initial Monday trading.
To give context, speculative traders on the ICE Brent futures contract had aggressively increased bullish bets in the days before the announcements. There was a net rise of over 56,000 contracts—pushing total net longs over 318,000. That build-up left the market exposed. It wasn’t merely about tariffs; expectations around OPEC+ production levels added to the pressure. When expectations of tighter barrels didn’t materialise as hoped, the pullback turned brisk.
At the same time, demand expectations have dulled. Current analysis points to flat demand through the remainder of the year compared to 2023 levels. We’re looking at a reduction in daily demand growth by roughly 1 million barrels. It’s not a collapse in usage, but rather a stagnation that weakens the floor for pricing.
Supply Side Challenges
On the supply side, American producers are showing early signs of throttling back. Most shale operators require an average barrel price of around $65 to keep new drilling viable. With recent spot pricing in the low $60s and falling, sustained expansion becomes less economic. We’ve already noticed a slower pace in rig deployments and completions, which typically signal that investment decisions are being pushed or downsized.
Given that backdrop, directional bets need to be reassessed. Leverage on outright bullish exposure might fuel further volatility if macro headlines continue to hit sentiment. Watching positioning data going into this week will be key to gauging if more forced liquidation is on the cards or if the drawdown has flushed out the weakest longs.
Technical pressure also looms. With Brent breaking below two key moving averages on the weekly chart, eyes naturally shift to support levels not tested since late 2021. If price action remains below $65 without a swift recovery, it opens up ranges closer to $60 and below—not sweet spots if you’re holding expensive options or structured products aimed at higher spot levels.
Looking further, any recovery in oil will need either clearer demand pickup—perhaps from summer transport season surprises—or decisive supply tightening beyond what’s already been priced. Until either materialises, direction appears more skewed to adjusting for oversupply and lower margins. Best to stay disciplined on volatility exposure, particularly when markets are this headline-sensitive.
