[Reuters Breakingviews] Oil price has flaky defences against further falls

LONDON, April 7 (Reuters Breakingviews) - Donald Trump and his aides want oil prices to fall to $50 a barrel. After last week’s tariff bombshell, the U.S. president’s wish is coming true – Brent crude prices have slumped from $75 a barrel to under $64. They may yet fall further.

In the 9,675 trading days since Brent futures contracts began in 1988, there have only been 24 instances when Brent dropped 12.5% in a two-day period, Morgan Stanley reckons. It’s not surprising Trump’s tariff plans unveiled on Wednesday have joined the club. China – the world’s biggest oil buyer – has slapped a retaliatory rate of 34% on all U.S. imports, and other rivals like the European Union may retaliate too.

In theory, crude values could snap back. Collapsing equity markets may prompt Trump to rethink. Geopolitical risks remain high concerning key producers Russia and Iran, who jointly export over 5% of the world’s 103 million barrels of daily supply: Trump has recently threatened to tariff Russian oil buyers and bomb Iran if they don’t strike a Ukraine deal and a nuclear agreement, respectively. Meanwhile, investors can usually rely on the Organization of the Petroleum Exporting Countries and allies like Moscow, which contribute over 40% of global output and are collectively known as OPEC+, to club together and organise cuts to stop the rot.

Yet OPEC+ is not exactly a paragon of unity. While the group led by key producer Saudi Arabia has taken nearly 6 million barrels of daily supply out of the market since 2022, members like Kazakhstan have been desperate to generate revenue by pumping more. The day after the U.S. tariff announcement, OPEC+ unexpectedly tripled the amount of output increases it was planning in May – exacerbating the price-sapping impact of the move.

That could be a mere prelude to a messier free-for-all. In 2020 Saudi, tired of producing way below its 12 million daily barrel capacity to keep prices up while Russia pumped away, abruptly said it would produce what it liked. If it tries to offset lower revenue from this year’s price slump it may just chase market share instead – sending prices to Trump’s $50 a barrel level.

Five years ago, the spat with Russia ended quickly when it became clear that the demand collapse from Covid required a huge coordinated 10 million barrel-a-day producer cut. In 2025, differing views on how bad things could get may deter this sort of instant accord. Morgan Stanley sees a 1 million barrel a day hit if tariffs cause a global recession, effectively wiping out this year’s demand growth, but Goldman Sachs have only shaved 300,000 barrels a day off their estimates. With Trump potentially too busy fighting the trade war fires he himself has lit to cause other geopolitical storms, oil prices look perilously positioned.

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CONTEXT NEWS

Brent oil futures lost 3.9% to trade at $63 a barrel as of 0914 GMT on April 7.

Responding to U.S. President Donald Trump’s tariffs, China said on April 4 that it would impose additional levies of 34% on American goods, confirming investor fears that a full-blown global trade war has begun.

Eight OPEC+ countries unexpectedly agreed on April 3 to advance their plan to phase out oil output cuts by increasing output by 411,000 barrels per day in May, up from the previously planned 135,000 bpd.

The May hike is the next increment of a plan agreed by Russia, Saudi Arabia, UAE, Kuwait, Iraq, Algeria, Kazakhstan and Oman to gradually unwind their most recent output cut of 2.2 million bpd, which came into effect in April.

OPEC+ also has 3.65 million bpd of other output cuts in place until the end of 2026 to support the market.

U.S. President Trump announced a broad range of reciprocal tariffs on trading partners on April 2.

Brent futures traded at $74.95 a barrel at market close on April 2.

Graphic: Oil prices have fallen 17% since Trump was voted US president