Oil prices tumbled to their lowest levels since May as escalating U.S.-China trade tensions and easing Middle East conditions intensified pessimistic sentiment driven by concerns over global crude supply surplus. On Friday, WTI crude futures dropped 5.32% to $58.24 per barrel, declining 4.34% for the week, while Brent crude futures fell 4.75% to $62.12 per barrel, down 3.73% for the week.

President Trump on Friday threatened to impose "massive tariffs" on Chinese goods, reigniting market concerns that a tariff war between the world's two largest economies would dampen oil consumption. "If Trump follows through on his latest threats, it will create negative economic impacts and hit demand for crude oil and refined products," said John Kilduff, founding partner of Again Capital LLC.

According to data from Bridgeton Research Group, Commodity Trading Advisors (CTAs) capable of accelerating price momentum significantly reduced long positions on Friday, pushing WTI crude short positions to 91%, a substantial increase from 55% on October 9. The firm added that Brent crude short positions are at similar levels.

"Crude faced a triple hit today - renewed trade tariff tensions weakening demand outlook, broader risk asset selling keeping dip buyers on the sidelines, and systematic strategies potentially adding further short positions," said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. "Without catalysts for dip buying, we could see more downside than expected before finding support."

Adding new pressure to oil prices, Israel began withdrawing from Gaza while the U.S. initiated a 72-hour ultimatum demanding Hamas release all remaining hostages - a significant step toward ending the regional turmoil. This development essentially eliminated the oil risk premium previously associated with Middle East conflicts, a region that supplies about one-third of global crude oil.

Meanwhile, the oil market is heading toward significant supply surplus as crude production continues rising both within and outside the OPEC+ alliance. OPEC+ agreed over the weekend to increase production quotas to reclaim market share.

Citigroup noted that overall market sentiment remains bearish, though there are still divisions regarding the degree of pessimism about oil price prospects. Friday's oil price decline may have also been influenced by so-called "gamma effects," with substantial options positions around the $60 level. Put options at this price point represent the largest short contract positions over the next year, with open interest reaching 109,000 contracts. As futures prices fluctuate around $60, market makers' hedging activities could amplify volatility, with further declines potentially forcing them to increase selling pressure.