On Saturday, eight members of OPEC+, including Saudi Arabia and Russia, announced they would add 411,000 barrels per day to the global oil market to fulfill the organization’s announced plan to return all the organization’s sidelined output gradually. Oil prices fell in response. Brent, the global crude oil benchmark, fell below $59 a barrel, a drop of more than 4%. The low price was testing the four-year lows reached last week. By Sunday night, prices were slightly above $59. West Texas Intermediate also dropped and traded Sunday night at about $56 a barrel.
Early traders were reacting to the news with the assumption that the global oil market could soon be in surplus. This fear has driven oil prices lower consistently since the first three quarters of 2024, when they were averaging $70 a barrel. What is unknown about the OPEC+ decision is what Kazakhstan, Iraq, and the UAE will do.
If Saudi Arabia is unleashing a market-share war on the cheating members of OPEC+, the world could see substantially lower oil prices. However, lower prices carry the seed of their rebound as high-cost production is choked back and economies respond to the stimulus of lower fuel costs. More demand and less supply is the recipe for a recovery, often surprisingly strong.
The uncertainty of the impact of President Donald Trump’s tariffs on global economic activity, especially China, drives the view of the oil glut. News reports indicate that plants in China are shutting down as orders from the U.S. are not coming. Workers are protesting, demanding their back wages and action by the government to protect their jobs. These news reports surfaced just as the rumors that China had contacted the Trump administration over talks about the tariffs.
Like sailing through fog, sounds and images can be distorted, and their location is uncertain. The same is true of governments responding to the initial threats and now certain realities of tariffs. Interestingly, Chevron CEO Mike Wirth, speaking with Maria Bartiromo on Fox News Sunday morning, noted that all the data they see shows no signs of an impending recession, which would cut oil demand.
Trump’s secondary sanctions on buyers of Iranian oil, primarily China, are reacting. When discussing his firm’s negotiations with the Trump administration over securing a renewal of its license to operate in Venezuela, Wirth also mentioned that Venezuelan representatives were in China discussing selling it more oil.
The fog of tariff uncertainty will lift. Feeling one’s way through it is unnerving. Oil prices may experience a V-shaped recovery just as the stock market has. As a reminder, when tariffs were initially announced, the market dropped. As tariff negotiations were announced and various onerous ones were modified, the S&P 500 rebounded above the level when the tariff scare began.
