Oil prices sink to 2021 lows as tariff war fans recession fears

[SINGAPORE] Crude oil prices have plunged to their lowest levels since 2021, when Covid curbs hurt business activity, amid an escalating tariff crisis that is fuelling trade war recession fears and sparking a broad sell-off in commodities tied to global growth.

For oil prices, long buoyed by geopolitical tensions and production cuts, the sudden reversal marks a shift in market psychology – from supply risk to collapsing demand.

Brent and US West Texas Intermediate crude futures fell by over 2 per cent on Tuesday (Apr 8) to US$64.21 and US$60.70 a barrel, respectively – their lowest levels since April 2021 – when global demand was still reeling from Covid-related business disruptions. This was after both crudes fell more than 6 per cent for two consecutive days.

Market strategists say the next moves in oil will hinge not just on the depth of the trade spat, but also on how key US trading partners respond.

Bank of Singapore commodities strategist Sim Moh Siong highlighted that the fear stems from a potential “full-blown recession” in which other countries retaliate and the US keeps its tariffs high.

“If the likelihood of the (full-blown recession) scenario persists, we could see more downside to oil,” he said.

Oil prices have slumped as the escalating US-China tariff fight reignites fears of a global recession, dragging down broader sentiment across energy markets.

Rystad Energy’s vice-president of oil markets, Janiv Shah, said: “Weaker demand expectations and a potential supply rebound from Opec+ (Organization of the Petroleum Exporting Countries and other oil-exporting nations) are also tilting the market’s balance for the year.”

Bank of Singapore previously lowered its forecast for the price of crude oil to US$70 from US$75 a barrel on Opec+ countries unwinding oil output cuts, but has gone back to the drawing board to adjust expectations in the wake of the fresh downside risks, said Sim.

“The responses (by the US’ trading partners) are the key here,” he noted. If other countries choose negotiation over retaliation in response to US tariffs, and succeed in that tariffs are adjusted downwards, oil prices may stabilise as recession risks ease.

He noted that the European Union took a “more measured approach” overnight with both tariffs and willingness to negotiate.

The basis for the formula behind the US’ so-called reciprocal tariffs remains unclear. “Even though it’s called a reciprocal tariff, there’s nothing reciprocal about it,” noted Sim.

Rystad Energy’s Shah noted that future movements of crude prices also hinge on how US sanctions and military tensions unfold.

At the moment, the energy intelligence firm expects the price slide to be short-lived, cushioned by anticipated summer demand and ongoing geopolitical risks.

On Tuesday, UOB downgraded its Brent crude oil price forecast further by US$5 a barrel to US$65 a barrel for Q2 and Q3, and to US$60 a barrel for the following two quarters.

The bank’s head of markets strategy, Heng Koon How, cited two key risks against Brent crude oil – further global growth slowdown due to Washington’s chaotic roll-out of punitive reciprocal tariffs, and a larger-than-expected return of production volume from Opec+.

He also noted that current crude prices reflect minimal geopolitical risk premium. “Any renewed deterioration in Middle East geopolitics or renewed dramatic escalation in war between Ukraine and Russia risks could reignite this geopolitical risk premium.”