Crude oil markets are facing a stark recalibration, with Brent dipping below $66 per barrel this week—a near 20% drop from early April highs. Much of the downturn is driven by growing evidence that the geopolitical premium which had supported prices for months is now overwhelmed by macroeconomic pessimism.
The oil market appears to be pricing in a world not of scarcity, but of suppressed demand and political overhangs.
At the centre of this shift is Saudi Arabia. Riyadh has begun signalling a subtle but significant change in tone. While the Kingdom is still formally aligned with OPEC+ output restraint, there are signs that its calculus may be shifting from price defence to market share. The world’s largest oil exporter appears increasingly anxious about losing long-term demand in key Asian markets to discounted Russian and Iranian barrels. This concern is compounded by China’s growing reliance on these alternative suppliers, with refiners showing little urgency to boost Saudi intake.
Meanwhile, the broader OPEC+ alliance has found itself caught between conflicting imperatives. On one hand, a coordinated supply discipline has helped stabilize prices in recent months. On the other, internal pressures—from budgetary strains in Russia to market share erosion in the Gulf—are pushing the bloc toward loosening the reins. There is growing speculation that the group may further unwind voluntary cuts in its upcoming meeting, as a way to pre-emptively secure barrels in a softening demand landscape.
But supply is only part of the equation. The overriding concern for markets is demand, and it’s deteriorating quickly. The U.S.-China tariff standoff has taken centre stage again, with the Biden administration considering new tariffs on Chinese electric vehicles and tech goods. Beijing has already indicated potential retaliatory measures, further spooking investors. The re-emergence of tariff escalation is seen by traders as “deeply destabilizing”—not only for energy consumption forecasts, but for global growth at large.
The demand drag is visible across regions. European refinery throughput has been hampered by both weak margins and infrastructure outages. In the U.S., crude inventory builds suggest lacklustre refining activity, with expectations of a 500,000-barrel rise in commercial stocks last week. Chinese economic signals remain mixed, with property and manufacturing sectors still struggling despite nominal headline GDP growth.
For Pakistan, the drop in oil prices offers momentary macroeconomic relief. TA sustained period of lower crude prices could ease pressure on the trade deficit and energy-linked inflation. However, the fiscal space to pass on the full benefit to consumers is limited by revenue needs—particularly from petroleum levies.
More broadly, a weak oil market reflects weak global growth, which in turn risks dampening Pakistan’s own export and remittance outlook. The challenge, therefore, is twofold: taking advantage of short-term import savings, while preparing for a potentially leaner external environment in the quarters ahead.
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