Global oil prices plummeted 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—raised concerns over diminished demand. Additionally, surging supply levels further weighed on the market, sparking fears of a potential global oil surplus.
As of 4:23 a.m. GMT, Brent crude futures fell by $2.38 (3.79%), reaching $60.44 per barrel, while U.S. West Texas Intermediate (WTI) crude futures dropped $2.46 (4.13%) to $57.12. Both oil benchmarks have now seen declines for five consecutive trading sessions.
Growing Concerns of Oil Glut
The Brent six-month spread, which tracks the difference between the current and future price of oil, also narrowed sharply to just $0.79, the lowest since mid-November 2024. This marks a significant decline from the $5.69 peak recorded in January, indicating the market is increasingly pricing in a surplus and potential oversupply.
The Impact of the US-China Tariff War
The oil market’s bearish trend is largely attributed to the recent escalation in the trade war between the U.S. and China, which intensified on Wednesday with the implementation of President Donald Trump’s 104% tariffs on Chinese imports. The tariffs, which include an additional 50% penalty after China failed to roll back its own retaliatory measures, have stoked fears of a prolonged trade conflict that could suppress global economic growth and curtail fuel demand.
In response, China denounced the tariffs as economic “blackmail” and vowed to impose additional retaliatory measures, dampening hopes for a swift resolution. Analysts are now warning that China’s oil demand growth, previously expected to contribute an additional 50,000 to 100,000 barrels per day (bpd), could be significantly reduced if the trade dispute persists.
Ye Lin, Vice President of Oil Commodity Markets at Rystad Energy, remarked, “China’s aggressive retaliation diminishes the chances of a quick deal between the world’s two biggest economies, triggering mounting fears of an economic recession across the globe.”
OPEC+ Production Increase Adds to Oversupply Fears
Further contributing to market instability, OPEC+—which includes the Organization of the Petroleum Exporting Countries (OPEC) and allies like Russia—agreed last week to increase production by 411,000 bpd in May. This decision is viewed by many analysts as potentially exacerbating the risk of oversupply in the market, especially as demand remains uncertain amid ongoing trade tensions.
Goldman Sachs has revised its outlook, projecting that Brent crude prices could dip to $62 per barrel by the end of 2025 and $55 by the end of 2026, with WTI expected to follow a similar downward trajectory.
Implications for Nigeria’s Oil-Dependent Economy
The sharp decline in oil prices poses significant risks for Nigeria, which is heavily reliant on oil for government revenues and foreign exchange earnings. Oil accounts for about 80% of Nigeria’s government revenues and 95% of its foreign exchange earnings, meaning prolonged price weakness could exacerbate fiscal pressures and threaten the country’s macroeconomic stability.
Nigeria’s 2025 budget benchmark is set at an oil price of $75 per barrel well above Brent’s current price of around $60. A sustained price shortfall could lead to wider budget deficits, increased borrowing, and strain on the foreign exchange market.
Furthermore, the narrowing Brent spread and expectations of an oversupplied market could dampen investment in Nigeria’s upstream oil sector, particularly in deepwater projects with higher breakeven costs.
However, there is a potential silver lining. U.S. crude inventory data released by the American Petroleum Institute showed an unexpected drawdown of 1.1 million barrels, signaling some ongoing resilience in demand despite the broader market challenges.
As the global oil market grapples with these shifting dynamics, Nigeria’s economy faces increasing vulnerability, particularly if the current oil price slump persists. The government will need to explore alternative sources of revenue and strengthen fiscal buffers to navigate the volatile global energy landscape.
