Trade War Tariffs Slam Oil Prices to 4-Year Lows Amid Recession Fears

The oil/energy markets are reeling under the weight of the ongoing trade war, with crude prices plunging to their lowest levels since the pandemic. West Texas Intermediate (“WTI”) crude oil price dropped below $60 per barrel on Monday, a level not seen since 2021, while Brent crude dipped as much as 5% to around $62. The sharp declines were a response to the latest round of tariffs announced by U.S. President Trump, reigniting fears of a global economic slowdown and weakened investor sentiment across energy markets.

Trump signed an executive order on Tuesday evening, hiking U.S. tariffs on China to a cumulative 104%, far surpassing the earlier 60% worst-case scenario he floated during his campaign. This move rattled global markets, particularly oil, as China remains the world’s biggest oil importer.

Tariffs Stoke Recession Fears, Demand Outlook Darkens

The tariffs, aimed at rebalancing U.S. trade, have sparked recession alarms. Goldman Sachs raised the probability of a U.S. recession to 45%, while JPMorgan took it up to 60%, citing trade-related uncertainties. These recession fears are severely denting the demand outlook for oil, traditionally seen as a bellwether commodity for economic health.

Oil majors like Exxon Mobil Corporation XOM, Chevron Corporation (CVX) and Shell plc SHEL have felt the brunt of investor anxiety. Shares of ExxonMobil have declined 15.3% since Trump’s tariff announcement, while those of Chevron and Shell have lost 18.7% and 18.2%, respectively. These declines highlight how vulnerable the energy sector is to trade-driven economic concerns. The pressure is compounded by expectations that industrial activity and transport fuel demand will remain subdued if tariffs continue to escalate.

XOM, CVX and SHEL have a Zacks Rank #3 (Hold) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

OPEC+ Supply Decision Adds to the Market's Burden

Alongside softening demand, the oil market now faces a potential supply glut. OPEC+ announced a production increase of 411,000 barrels per day starting next month, a move that has added fresh pressure on oil prices. The timing couldn’t be worse for energy producers like Chevron, which may need to reevaluate capital spending plans if crude prices remain below profitability thresholds.

The supply-demand mismatch is causing traders to reposition. Many expect oil to settle to a lower range in the coming months, limiting the upside potential for energy equities. Shell, which had previously benefited from higher prices during the post-pandemic recovery, now faces shrinking margins and tighter investor scrutiny.

Trump’s Strategic Play: Cheap Oil for Industrial Revival

Despite the pain for oil companies, some argue that the current scenario plays into Trump’s broader strategy. Cheap and abundant energy, while painful for producers like ExxonMobil, could stimulate domestic manufacturing by lowering input costs. Trump’s “Liberation Day” tariff announcement was framed as a step toward reclaiming American industrial strength and lower oil prices may inadvertently support that goal.

However, this environment poses a challenge for integrated energy firms like Shell and Chevron. While downstream operations may benefit from cheaper crude, upstream profitability is under threat. ExxonMobil, with its heavy investments in U.S. shale and global exploration projects, may also face delays in capital deployment unless the pricing environment stabilizes.

What Lies Ahead?

With the U.S.-China trade war entering a more aggressive phase — now marked by a cumulative 104% tariff rate and looming Chinese retaliation — the pressure on global oil markets is unlikely to ease anytime soon. Unless there’s a diplomatic breakthrough or a policy shift, crude prices may remain stuck in a lower range, weighed down by recession fears and an uncertain demand outlook.

In this challenging environment, integrated energy giants like ExxonMobil, Shell and Chevron may focus on cost discipline, delaying capital-intensive projects and optimizing downstream operations to protect margins. While their upstream profitability is under threat from weak oil prices, their diversified business models and steady dividend payouts offer a degree of resilience. These attributes may prompt investors to hold them, despite recent stock declines, as they wait for geopolitical clarity or a potential supply-side intervention from OPEC+.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research