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Oil prices have been on a downtrend since the beginning of 2025, losing more than $20 per barrel (/bbl) in the three-month period. This was followed by WTI hitting a 4-year low in the first week of April 2025. On April 16, 2025, the WTI was hovering around $60/bbl, while Brent crude traded around $64/bbl. The sentiment could remain subdued through the year, with concerns around global economic growth. Here’s a look at factors driving the bearish sentiment on crude oil, pushing oil traders to short the world’s most traded commodity.
Traders observe the broader markets to speculate on asset prices and make informed trading
decisions. Here’s what you need to know about the reasons behind the slump in oil prices.
Despite a rise of 1.2 mb/d in consumption in Q1 2025, the International Energy Agency (IEA) revised its oil demand growth forecast for 2025 lower in its April 2025 report. The latest report indicates a 730 kb/d demand, nearly 300 kb/d lower than the previous month. An expected decline in the pace of global growth prompted the downgrade. Plus, given the recessionary fears in the US, due to tariffs, domestic demand may remain constrained, weighing on WTI prices.
Liquid fuel consumption in China drove oil prices through the 2010s, which is expected to remain subdued. The expansion of EVs and alternately fuelled trucks may further dent demand in the country. As a result, the red dragon’s liquid fuel demand may remain suppressed.
As of April 16, 2025, eight OPEC+ members indicated a production increase of more than 3x the level planned earlier. While the plan was to increase oil production by 135,000 barrels per day each month, these members are planning to push their output targets to 411 kb/d starting May 2025. That means the markets will be flooded with oil equivalent of three months of production within one month.
In addition, the UAE, Kazakhstan and Iraq had already been producing more oil than the allocated targets. Unfortunately, OPEC+ members, eager to reclaim market share, intend to ramp up production much faster than the time oil prices need to stay at profitable levels. Meanwhile, the non-OPEC+ supply is anticipated to rise by 1.3 mb/d.
Oversupply, clubbed with declining demand, directly affects oil prices. Oil traders tend to respond to supply surges with short trades, which further weighs on prices. Did you know that derivative instruments, such as contracts for difference (CFDs), allow traders to explore opportunities during price downturns? The ability to take advantage of more opportunities makes CFD trading popular.
Although oil, gas and refined products are excluded from tariffs, concerns around tariff-induced inflation, subdued growth and deteriorating trade relations weighed on investor sentiment. Due to the escalation of geopolitical uncertainty and ongoing tariff countermeasures, the risks remain undefined and the situation fluid. Such uncertainties trigger shorting, pressuring asset prices.
The IEA also reported that global oil inventories were up 21.9 mb in February 2025. The agency’s preliminary data suggested that stockpiles surged even further in March. A build-up of global inventories historically puts downward pressure on global crude prices.
While the US and OPEC+ nations are on an output expansion spree, certain events may prevent them and, hence, support crude prices.
Firms digging into the shale region are concerned about losses. Due to the surge in equipment prices, due to the new steel and aluminium tariffs, selling crude below $65/bbl may not be profitable. Reduced drilling activity could push crude prices up.
The White House has paused tariff plans for 90 days, starting April 9, 2025. This may be a time for Trump to reconsider tariffs, oil output and trade treaties creating uncertainty in the oil markets. Uncertainty induces volatility, creating opportunities for traders to take advantage of. Improved trade prospects, if tariffs are lowered, may indicate a restoration of global trade and, hence, fuel crude demand, lending support to oil prices.
The oil and stock markets develop a positive correlation when concerns around a global economic slowdown rise. In March 2025, the correlation coefficient between the stock market and crude oil reached 0.9. Correlation coefficients range between -1 and 1, indicating a strong negative (-1), none (0) or a perfect positive (1) correlation. Understanding this developing relationship may be instrumental in utilising stock market data to speculate on oil prices.
There was a time when oil prices only moved in response to inflation. However, in recent few years, oil prices have been more affected by the prospects of global growth. Given the tense geopolitical situation, ongoing trade wars and supply-chain disruptions, investor decisions are being driven more by instability fears. This has strengthened the correlation between equities and oil.
The foremost strategy for oil trading is to keep an eye on important updates regarding the demand-supply equilibrium, tariffs, global oil policies, renewable energy demand and inventory updates.
Apart from fundamental analysis, oil traders power their trading decisions with technical indicators, such as the relative strength index (RSI), Bollinger Bands and moving averages convergence and divergence (MACD).
Practicing your trading strategy on a demo account can help build confidence to navigate uncertain markets.
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