Crude oil prices have plunged sharply—what impact does this have on the global economy? What are the main drivers of oil prices?

Recently, markets have been thrown into turmoil by Trump—his tariff policies keep changing daily, leading many to suspect he’s manipulating the stock market for personal gain. The U.S. Dollar Index has fallen below 100, while gold has surged to a new all-time high... In fact, the turbulence extends far beyond these developments. Most commodity sectors—except gold—have performed poorly; even crude oil, the ‘king of commodities,’ has plummeted 26% from its recent highs—effectively collapsing. Today, let’s discuss investment opportunities in this space. 1. Why did crude oil crash? Primarily because, following Trump’s announcement on April 2 of sweeping global tariff hikes, OPEC immediately retaliated with a production increase. Coupled with intensifying expectations of a global economic recession, crude oil prices tumbled sharply. Considering that U.S. shale oil producers require $60–70 per barrel just to break even, this plunge brought prices down to shale oil’s cost floor—effectively eliminating U.S. shale oil’s competitiveness. As a result, shale oil can now only be sold domestically within the U.S. Even Warren Buffett’s beloved Occidental Petroleum recently plunged 23%, a truly grim sight. 2. Crude Oil vs. Gold: Why It’s Unsuitable for Long-Term Holding Since we’re discussing crude oil, we must address an intriguing phenomenon: Brent crude oil stood at $64 per barrel in 2006—and remains unchanged today, whereas gold has surged fivefold over the same period. Many people hear this and wonder: Crude oil is a finite, non-renewable resource—shouldn’t its long-term price trend resemble gold’s? First, unlike gold, crude oil is extremely difficult to store. Storing it requires massive dedicated tanks and incurs exceptionally high costs—roughly 6% annual value erosion due to spoilage and storage expenses. Thus, virtually no one hoards crude oil—it’s a value-destroying activity. Notice how there isn’t even a spot-based ETF for investing directly in physical crude oil—only futures-based ETFs exist—clear evidence that crude oil lacks intrinsic ‘long-term inflation-hedging value.’ Take USO, the ETF tracking WTI crude oil prices: comparing its performance against actual oil prices reveals precisely this: Crude oil is a quintessential supply-and-demand-driven cyclical industry—deeply intertwined with global macroeconomic conditions, geopolitical developments, inventory cycles, technological breakthroughs, and energy transitions. Gold, by contrast, is easy to store: all the gold ever mined—216,000 metric tons—could fit comfortably onto a single football field. Global annual gold production stands at roughly 3,600 tons—just 1.6% of the total above-ground stock. In other words, gold mining output cannot keep pace with global monetary expansion. Combined with its ease of storage and liquidity, gold functions primarily as an investment asset with strong inflation-hedging properties. Crude oil, however, is relatively easy to extract and abundant in supply—its primary function is as a consumable, not a store of value—hence its weaker inflation-hedging capacity. So here’s the puzzle: Even if crude oil is merely a consumable, shouldn’t its price at least keep up with inflation given its increasing scarcity? Why has it gone two decades without appreciating? Originally, conventional wisdom held that known recoverable reserves—about 5.8 trillion barrels—would deplete within 30–40 years. But after the 21st century, technological advances—especially U.S.-developed shale oil extraction—changed everything. This technique enables recovery of kerogen from shale formations and its conversion into synthetic crude oil nearly identical in quality to conventional crude.

Will crude oil prices rise or fall?

Recently, Iran and the United States have entered a historic confrontation. Iran—like other Middle Eastern countries such as the UAE and Iraq—relies heavily on its vast natural petroleum resources for national wealth. The U.S. has imposed sanctions on Iran multiple times, though the precise reasons remain unclear. Should Iran and the U.S. enter open conflict, Iran would be unable to export oil. Moreover, a strategically critical waterway—the Strait of Hormuz—lies adjacent to Iran. As everyone knows, maritime shipping is the lowest-cost method for transporting oil, and this strait serves as the sole maritime route for much of the world’s oil shipments. Globally, oil is not only a vital industrial feedstock but also a cornerstone of transportation infrastructure. Any significant decline in global oil output—while everyday demand (e.g., driving, air travel, manufacturing) remains unchanged—will inevitably push oil prices upward. Consequently, oil-dependent sectors—including airline ticket pricing and gasoline retail—will see inevitable price hikes. For investors, the immediate reaction upon signs of war is naturally to buy stocks linked to crude oil. For instance, the USO ETF surged from $60 to $120—and even $136—within just one to two weeks. Investors who bought shares at $60–$80 before the conflict erupted would have doubled their money in under two weeks. However, stock price movements reflect collective decisions by numerous market participants—including institutional investors, retail traders, and algorithmic trading systems—each acting according to their own strategies. Under the basic principle that buying pushes prices up and selling pulls them down, USO’s upward momentum was later tempered by events such as U.S.–Iran negotiations and diplomatic overtures, shifting investor sentiment from bullish to bearish. Additionally, automated trading algorithms triggered pre-programmed buy or sell orders at specific price levels—further contributing to short-term volatility.

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