Oil Prices Slide Over 2% as U.S.-China Trade Tensions and IEA Forecast Hit Market Sentiment

Global oil prices fell sharply on Tuesday as escalating trade tensions between the United States and China, coupled with a bearish supply outlook from the International Energy Agency (IEA), weighed heavily on market sentiment.

Brent crude oil, against which Nigerian oil is priced, dropped 2.3 percent or $1.46 to $61.86 per barrel by 12:08 p.m. in Nigeria, while U.S. West Texas Intermediate (WTI) fell 2.5 percent or $1.46 to $58.03 per barrel — both benchmarks hitting their lowest levels in five months.

The decline reversed modest gains from the previous session, when Brent closed 0.9 percent higher and WTI gained 1 percent.

Analysts say the latest losses reflect renewed investor caution as geopolitical uncertainty and weak demand expectations dominate the market.

UBS analyst Giovanni Staunovo noted that “a risk-off mood has taken hold” following a combination of negative signals from global trade developments and the IEA’s downbeat assessment of supply and demand trends.

Energy traders reacted to mounting trade friction between the world’s two largest economies after Beijing expanded export controls on rare earths and Washington threatened new 100 percent tariffs and software export restrictions effective November 1.

The tension escalated further on Tuesday when China imposed sanctions on five U.S.-linked subsidiaries of South Korean shipbuilder Hanwha Ocean, while both countries announced new port fees on ocean shipping companies.

Although U.S. Treasury Secretary Scott Bessent said President Donald Trump remains committed to meeting Chinese President Xi Jinping later this month in South Korea to de-escalate tensions, investors remain skeptical about any near-term resolution.

Market participants fear the trade dispute could weaken global economic growth and limit oil consumption in the coming quarters, intensifying downward pressure on prices.

The International Energy Agency warned in its latest report that the global oil market could face a surplus of up to 4 million barrels per day next year, driven by rising output from OPEC+ producers and other rivals against sluggish demand growth.

By contrast, OPEC’s own monthly outlook presented a slightly less bearish scenario, projecting that supply-demand imbalances will narrow by 2026 as coordinated production adjustments take effect across the OPEC+ alliance led by Saudi Arabia and Russia.

The IEA’s outlook added to bearish sentiment across energy markets, reinforcing fears of a repeat of 2019-style oversupply conditions when economic uncertainty and high inventories pressured prices.

In futures trading, the Brent six-month spread narrowed to its smallest premium since early May, while the WTI spread hit its lowest level since January 2024.

The narrowing spread — known in trading terms as reduced backwardation — indicates that investors are earning less profit from selling oil for immediate delivery relative to future contracts. This typically signals that near-term supply is ample and that traders expect weaker demand ahead.

The combination of weakening spreads, soft macroeconomic indicators, and trade uncertainty suggests that oil markets could remain under pressure in the short term, with volatility expected to persist into the fourth quarter.

Analysts expect prices to remain range-bound unless geopolitical risks intensify or OPEC+ members signal deeper supply restraint. Traders will monitor upcoming U.S. inventory data and any developments from Washington and Beijing that could influence economic growth expectations.

While the current price correction reflects market anxiety, some analysts note that structural support remains in place due to steady refinery demand, ongoing OPEC+ coordination, and seasonal consumption trends heading into winter.

However, until global trade tensions ease and demand growth stabilizes, the near-term outlook for crude remains fragile, with Brent likely to hover near the $60 per barrel threshold in the coming weeks.