Global oil markets experienced a modest recovery on Tuesday, with prices climbing more than 1% after a brutal selloff driven by fears that new U.S. tariffs could trigger a worldwide economic slowdown. The rebound offered temporary relief to energy investors, but analysts warned the recovery remains fragile as trade tensions between Washington and Beijing escalate.

Market Movements
At 00:51 GMT Tuesday:

• Brent crude futures rose 1.26% to $65.02 per barrel
• West Texas Intermediate (WTI) gained 1.52% to $61.61

This followed Monday’s 2% plunge that brought prices near four-year lows, as markets digested the potential consequences of President Trump’s proposed tariffs of 10-50% on all U.S. imports.

The Tariff Domino Effect
Energy economists identify three key transmission channels through which tariffs could impact oil markets:

1. Demand Destruction
   • Potential global GDP reduction of 0.5-1.5% if tariffs escalate (IMF estimates)
   • Every 1% drop in global growth equates to ~500,000 bpd lost oil demand
2. Supply Chain Disruptions
   • 18% of global oil trade flows through tariff-vulnerable routes
   • Potential delays at key chokepoints like the Malacca Strait
3. Currency Volatility
   • Strengthening dollar making oil more expensive for emerging markets
   • Yuan depreciation pressures complicating China’s crude purchases

Production Economics Provide Floor
While demand concerns dominate headlines, supply-side factors may prevent prices from collapsing further:

• U.S. shale break-even costs cluster around $60/bbl for WTI
• 23% of Permian Basin operators become cash-negative below $58
• OPEC+ likely to extend production cuts if prices approach $60

“The market is caught between two powerful forces,” explained Rystad Energy analyst Sofia Guidi. “Recession fears are pulling prices down, while production costs and OPEC’s resolve are creating a floor.”

What’s Next?
Traders will closely monitor:

• June 10: Next OPEC+ policy meeting
• June 15: Deadline for next U.S. tariff escalation
• July: Peak U.S. driving season demand test

As the EIA revises its 2024 demand growth forecast downward (from 1.1 mb/d to 0.8 mb/d), the oil market’s recovery appears precarious at best.