Oil News: Can Iran Supply Disruptions Offset Weakening Demand from China?

Tariffs and Recession Fears Dominate Crude Oil Market Fundamentals

Crude oil prices came under renewed pressure this week as escalating trade disputes and growing concerns over demand destruction dominated the market narrative. U.S.-China trade tensions intensified with reciprocal tariff hikes—145% from Washington and 125% from Beijing—deepening fears of a global economic slowdown. This deterioration in macro sentiment has dragged oil benchmarks lower for the second consecutive week, reversing earlier gains and fueling a risk-off tone across commodities.

Last week, Light Crude Oil Futures settled at $61.50, down $0.49 or -0.79%.

The impact of these tariffs is being felt across the oil complex. The Energy Information Administration and several investment banks revised down global demand growth forecasts, warning that oil consumption could fall by up to 1% if global GDP slips below 3%. Rystad Energy highlighted that Chinese demand, previously expected to grow by up to 100,000 barrels per day, is at risk of stagnating. Market participants are pricing in a prolonged downturn in industrial activity, particularly in Asia, where recent restocking may not repeat unless prices remain deeply discounted.

Geopolitical Risks Offer Limited Support as Supply Concerns Build

While demand fears dominate, supply-side risks have emerged as a potential counterbalance. The U.S. administration signaled a hardening stance toward Iran, with the Energy Secretary declaring the U.S. can “stop Iran’s export of oil.” Iran currently exports over 1 million barrels per day, mostly to China, and any disruption could materially tighten global balances. Additionally, uncertainty around U.S.-Iran nuclear talks and the potential for military escalation remain in play, offering a floor under prices even as other pressures mount.

However, any bullish momentum from these risks was tempered by OPEC+’s decision to increase output by 411,000 barrels per day in May. This supply bump, arriving in a fragile demand environment, has revived concerns of a potential market surplus. Russian ESPO crude falling below the G7 price cap further underscored the oversupply signals.

U.S. Production Margins Under Strain as Rig Counts Fall

U.S. shale producers are also facing pressure. With breakeven levels around $65 per barrel, current prices are straining profitability, particularly when accounting for debt servicing and rising equipment costs driven by tariffs. Rig counts have already declined by over 380 from peak levels, and more cuts are likely unless pricing conditions improve. While this could lead to a future supply crunch, for now it adds to market caution.

Oil Prices Forecast: Bearish Outlook Holds as Demand Risks Lead

This week’s crude oil market action was driven by a deepening demand outlook and rising macroeconomic stress. Despite emerging supply risks and the potential for future tightening, the current balance of fundamentals remains weighted to the downside. Until trade tensions ease or meaningful supply reductions materialize, the oil price forecast remains bearish.

Technically, the tone of the market this week will be determined by trader reaction to the pivot at $63.70. However, the overall long-term trend is expected to remain down until buyers can overcome the 52-week moving average at $70.08. This suggests traders are likely to remain in “sell the rally” mode.

More Information in our Economic Calendar.