Economy

How US-China Trade Spat Sinks Oil Prices: What Businesses Need to Know

Oil prices fell as U.S.-China trade tensions rose, impacting market sentiment. Brent and WTI crude both declined 0.4%.

October 14, 2025, 8:36 AM

Close-up view of the bow of a massive oil tanker ship painted red and blue, cutting through deep blue ocean water.

This close-up view captures the massive hull and bow of a large oil tanker ship, a vital component of the global energy and maritime shipping industry. By MDL.

Executive Summary

Oil prices declined on Tuesday, reversing earlier gains, due to escalating U.S.-China trade uncertainties impacting global fuel demand.

Intensified trade tensions are marked by China’s willingness to “fight to the end,” President Trump casting doubt on a meeting with President Xi, and new reciprocal tariffs and sanctions.

Ample near-term oil supply, evidenced by narrowing backwardation and OPEC+ output increases, is also contributing to market pressure.

The Story So Far

The downturn in oil prices is primarily driven by escalating trade tensions between the United States and China, which are creating significant uncertainty about global fuel demand. Despite earlier hopes for de-escalation, both nations have recently taken aggressive actions, including China’s expanded rare earth export controls, President Trump’s tariff threats, and new sanctions, contributing to cautious market sentiment. This trade dispute is occurring alongside an ample near-term oil supply due to OPEC+ increases and seasonal refinery maintenance, which further influences price movements.

Why This Matters

Escalating trade tensions between the U.S. and China, marked by President Trump’s tariff threats and China’s retaliatory measures, are driving significant uncertainty and volatility in global oil markets, threatening to curb worldwide fuel demand and potentially leading to broader economic instability, while ample near-term supply further complicates the pricing outlook.

Who Thinks What?

Oil markets and analysts like Suvro Sarkar of DBS Bank view oil prices as highly sensitive to U.S.-China trade rhetoric, predicting near-term range-bound movement and indicating ample supply due to narrowing backwardation, increased OPEC+ output, and seasonal refinery maintenance.

China’s government has expressed a willingness to “fight to the end” in the trade dispute, demonstrating this through expanded export controls on rare earths and imposing sanctions on U.S.-linked subsidiaries.

President Donald Trump’s administration has shown a fluctuating stance, initially committing to a meeting with President Xi to de-escalate tensions, but later threatening 100% tariffs and software export curbs, and ultimately casting doubt on the value of such a meeting.

Oil prices saw a downturn on Tuesday, reversing earlier gains amidst escalating uncertainties surrounding trade relations between the United States and China. The two largest global economies are locked in a dispute that threatens to curb worldwide fuel demand, influencing market sentiment.

Brent crude futures recorded a 0.4% decline, settling at $63.04 a barrel, while U.S. West Texas Intermediate (WTI) crude also fell by 0.4% to $59.26. This dip followed a session where Brent had closed 0.9% higher and U.S. WTI was up 1%.

Trade Tensions and Market Impact

The fluctuating oil prices reflect ongoing anxieties over the U.S.-China trade dispute. Suvro Sarkar, energy sector team lead at DBS Bank, noted that oil markets are particularly sensitive to the rhetoric from both sides, although he anticipates prices will remain range-bound in the near term.

Despite working-level talks, China has expressed a willingness to “fight to the end” if necessary, contrasting with earlier indications of a potential meeting between President Donald Trump and Chinese President Xi Jinping.

Recent Developments and Policy Shifts

U.S. Treasury Secretary Scott Bessent had previously stated President Trump’s commitment to meeting President Xi in South Korea this month to de-escalate tensions. However, recent actions have complicated this outlook.

Last week, Beijing expanded export controls on rare earths, while President Trump threatened 100% tariffs and software export curbs starting November 1. On Tuesday, China also imposed sanctions on five U.S.-linked subsidiaries of South Korean shipbuilder Hanwha Ocean.

Both the U.S. and China are set to introduce additional port fees on ocean shipping firms, affecting a wide range of goods from consumer products to crude oil. President Trump had also cast doubt on a meeting with President Xi during the Asia-Pacific Economic Cooperation (APEC) summit, stating on Truth Social that there “seems to be no reason to do so.”

Supply Dynamics and Backwardation

The front-month U.S. crude oil futures ended Monday’s trading with their smallest premium over the seventh-month contract since January 2024. This narrowing backwardation suggests that investors are earning less from immediate deliveries, indicating an ample near-term supply.

This market condition is partly due to OPEC+ ramping up supply, alongside seasonal refinery maintenance in the U.S. which is pressuring demand for prompt barrels.

In its monthly report, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, projected that the oil market’s supply shortfall would diminish in 2026, aligning with planned output increases by the wider OPEC+ alliance.

Key Takeaways

Oil prices are currently navigating a complex landscape shaped by intensified U.S.-China trade tensions and shifts in global supply dynamics. The uncertainty surrounding trade talks and recent policy actions from both nations continue to exert pressure on market sentiment, leading to cautious price movements despite earlier gains.