On Wednesday, oil prices dropped to a four-year low, driven by expectations of slowing economic growth and diminished energy demand. This downturn is a direct consequence of the ongoing trade war initiated by President Donald Trump's imposition of widespread tariffs on imports from U.S. trading partners. During midday trading on the New York Mercantile Exchange, U.S. benchmark crude fell by 4.3%, landing at $56.98 per barrel. Earlier in the day, prices dipped further, reaching levels not observed since February 2021, which marked the peak of the COVID-19 pandemic.
The plummet in oil prices has been remarkable, with the cost of a barrel falling by more than $20 since the beginning of the year. Just a year ago, a barrel of U.S. crude was priced at $85, reflecting a 34% decrease in value. In early April, before the tariffs were implemented, the price was around $71 per barrel. Similarly, Brent crude, the European benchmark, dropped $2.36, settling at $60.46 per barrel.
This significant reduction in energy prices coincided with the introduction of Trump's latest round of tariffs, which took effect after midnight and included a staggering 104% tax on imports from China. In response, China escalated the tension by announcing it would elevate tariffs on U.S. goods to 84%. The European Union member states also reacted by imposing retaliatory tariffs on $23 billion in U.S. products, although these represent a small fraction of the overall annual trade between the U.S. and the EU, which totals approximately 1.6 trillion euros ($1.8 trillion).
The rapid decline in oil prices is often interpreted as a negative indicator of economic health and can signal the onset of a recession. As the price of oil drops, manufacturers are likely to cut production, businesses may reduce travel expenses, and families may reconsider their vacation plans. Delta Air Lines, which had initially projected a record year, revised its expectations by withdrawing its financial forecasts for 2025. The airline cited the uncertainty surrounding the trade war as a factor scrambling expectations for both business and household spending, consequently leading to a decline in bookings across the travel sector.
Delta's CEO, Ed Bastian, expressed concerns over the prevailing economic uncertainty related to global trade, stating that growth has largely stalled. In parallel, shares of major U.S. oil companies also experienced declines on Wednesday as the market reacted to the unfavorable economic outlook.
Neil Dutta from Renaissance Macro Research shared a sobering perspective, asserting in a note to clients, "We are going into a recession." He indicated that this statement is not particularly controversial given the current economic indicators.
