Oil prices climb on sanctions and supply concerns amid trade war risks

[WORLD] Oil prices jumped over 2% to a two-week high on Wednesday, driven by fears about global supplies following Washington's imposition of fresh sanctions on Chinese importers of Iranian oil. Brent crude futures rose $1.18, or 1.8%, to $65.85 a barrel, while US West Texas Intermediate crude ended $1.14, or 1.9%, higher at $62.47. LSEG data show that both benchmarks closed at their highest levels since April 3.

The United States has imposed fresh sanctions targeting Iran’s oil exports, with a particular focus on several Chinese "teapot" refineries—small, independent processors that have become key buyers of discounted Iranian crude. These refineries now account for nearly one-fifth of China’s total oil imports, making the sanctions a notable disruption to global crude trade flows. Analysts see the move as part of the Biden administration’s increasingly assertive approach to enforcing existing sanctions, signaling a firmer stance than initially expected.

The new sanctions, announced Wednesday, include penalties against at least one China-based refinery, reflecting Washington’s determination to curb Tehran’s oil revenue. The timing coincides with the U.S. re-engaging Iran in nuclear negotiations this month, aiming to revive stalled diplomacy over its atomic program.

At the same time, tensions in the Middle East remain high. Iranian-backed militias have reportedly launched drone strikes on Saudi oil infrastructure in recent weeks. While these attacks have not led to major supply outages, the risk of escalation looms large. Traders are closely monitoring the situation, particularly any potential response from Saudi Arabia, the world’s top crude exporter, which has so far remained silent. Energy analysts caution that any retaliation could push prices higher in an already volatile market.

Iran, for its part, remains defiant on the nuclear front. Foreign Minister Abbas Araqchi stated that Tehran’s right to enrich uranium is non-negotiable, setting the stage for potentially difficult discussions in the next round of talks scheduled to take place in Rome on Saturday.

Meanwhile, OPEC announced that it has received revised output cut plans from member countries such as Iraq and Kazakhstan, aiming to compensate for previous overproduction. The Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, have relied on high compliance with production quotas to help stabilize oil markets this year. However, internal rifts persist, particularly with Iraq, which has historically struggled to meet its targets. Despite pledging deeper cuts, concerns remain over Baghdad’s ability to deliver due to its fiscal reliance on oil exports. Kazakhstan, another frequent quota violator, has also faced scrutiny for slow progress on its commitments.

In the U.S., oil inventory data released by the Energy Information Administration showed a mixed picture. Crude stockpiles rose by 515,000 barrels to 442.9 million barrels in the week ending April 11, slightly above analysts’ expectations of a 507,000-barrel increase. Meanwhile, gasoline and distillate inventories saw modest declines, suggesting steady downstream demand.

Adding to concerns over global demand, the International Energy Agency revised its 2025 oil consumption outlook downward, now forecasting the slowest growth since the pandemic-stricken year of 2020. The IEA cited weaker industrial activity across Europe and softer consumption trends in Asia—particularly China—as key drivers behind the revision. Although China posted better-than-expected GDP growth of 5.4% year-on-year in Q1, refinery activity has slowed, hinting at a possible deceleration in domestic fuel demand.

"The level of tariff hikes already announced is much higher than previously anticipated," said Federal Reserve Chair Jerome Powell, warning that the resulting economic consequences could include increased inflation and dampened growth. His remarks led to a partial pullback in oil futures, which had earlier gained on geopolitical concerns.

Amid rising tensions, former President Donald Trump has increased tariffs on Chinese imports, prompting swift retaliatory measures from Beijing. Analysts fear that further escalation could imperil global economic stability. "Much of the world economy hinges on whether the U.S. and China can avoid a prolonged trade war," said Alex Hodes, market strategy director at StoneX.

According to a Bloomberg report citing unnamed sources, Beijing is demanding greater respect from Washington as a precondition for renewed trade talks. Market experts say a de-escalation in trade hostilities would help stabilize growth expectations and limit downside risks for oil demand.

Banks including UBS, HSBC, and BNP Paribas have since revised their crude price forecasts downward, citing ongoing trade friction. "If global GDP were to decline by 15%—a conservative estimate based on the last U.S.-China trade war—we could see oil demand growth shrink to just 600,000 barrels per day in 2025, roughly half of our previous projections," said Janiv Shah, vice president of commodity market analysis at Rystad Energy.

Despite China's stronger-than-expected first-quarter GDP figures, some analysts remain cautious. "This level of growth is unlikely to be sustained throughout the year," said PVM Oil analyst Tamas Varga, pointing to signs of softening consumption and industrial activity.