Global oil prices fell sharply on Wednesday, hitting their lowest levels since February 2021, as escalating trade tensions between the United States and China, the world’s two largest economies, dampened demand expectations.
Rising supply levels added further pressure on the market, triggering fresh concerns about a potential global oil glut.
According to Reuters, as of 4:23 a.m. GMT, Brent crude futures declined by $2.38 (3.79%) to $60.44 per barrel, while U.S. West Texas Intermediate (WTI) crude futures dropped $2.46 (4.13%) to $57.12.
Both benchmarks have now fallen for five consecutive trading sessions.
The Brent six-month spread also narrowed sharply to just $0.79, its lowest since mid-November 2024 — a steep fall from the $5.69 peak recorded in January, signaling that the market is increasingly pricing in a surplus.
US-China tariff war
The bearish momentum followed the implementation of President Donald Trump’s 104% tariffs on Chinese imports, which took effect from 12:01 a.m. EDT on Wednesday.
- The tariffs, which add an extra 50% penalty after China failed to roll back its own retaliatory measures, have escalated fears of a prolonged trade war that could stunt global economic growth and reduce fuel demand.
- In response, China denounced the move as economic “blackmail” and promised further retaliatory measures, complicating any hopes for a swift resolution.
- Analysts now warn that Chinese oil demand growth — previously expected to contribute an additional 50,000 to 100,000 barrels per day (bpd) — could be significantly curtailed if hostilities persist.
“China’s aggressive retaliation diminishes the chances of a quick deal between the world’s two biggest economies, triggering mounting fears of economic recession across the globe,” said Ye Lin, Vice President of Oil Commodity Markets at Rystad Energy.
Adding to the market’s woes, OPEC+, which includes the Organization of the Petroleum Exporting Countries and allies like Russia, agreed last week to increase production by 411,000 bpd in May, a move widely seen as contributing to potential oversupply.
In its latest outlook, Goldman Sachs projects that Brent could dip to $62 by the end of 2025 and $55 by the end of 2026, with WTI following a similar trajectory.
What this means for Nigeria
The recent plunge in oil prices presents a major risk for Nigeria’s oil-dependent economy. With crude oil contributing about 80% of government revenues and 95% of foreign exchange earnings, prolonged price weakness could exacerbate fiscal pressures and threaten macroeconomic stability.
At current prices, Nigeria’s 2025 budget benchmark oil price of $75 per barrel is significantly above Brent’s current level of around $60.
- A sustained shortfall could lead to wider budget deficits, increased borrowing, and further strain on the foreign exchange market.
- Moreover, the narrow Brent spread and surplus outlook may discourage fresh investment in Nigeria’s upstream sector, particularly in deepwater projects with higher breakeven costs.
- However, a silver lining may be found in U.S. crude inventory data released by the American Petroleum Institute, which showed an unexpected drawdown of 1.1 million barrels — indicating some level of ongoing demand resilience.
