Oil futures plunged more than 7% to hit multi-year lows on Friday as China retaliated against the Trump administration's tariffs, heightening concerns about declining demand during an ongoing trade war.

The US benchmark, West Texas Intermediate (CL=F), dropped around 8% to trade close to $62 per barrel, while Brent (BZ=F) futures declined by about 7% to remain just above $65. These levels had not been seen since 2021.

China's decision to impose additional tariffs of 34% on US goods in response to President Trump's tariff hikes on Chinese imports to 54% exacerbated the fall in oil prices. The impact of these tariffs on global growth raised the possibility of a recession, according to JPMorgan's Natasha Kaneva.

Following Trump's tariff announcements, financial markets experienced turmoil, leading to a more than 6% drop in crude prices on Thursday as traders evaluated the trade war's effects on demand.

The plunge in energy-related equities (XLE) continued after the market decline on Thursday, affecting major indices like the Dow (^DJI), S&P 500 (^GSPC), and Nasdaq (^IXIC).

The downward trend in crude prices was further exacerbated on Thursday when OPEC+ decided to increase oil supply more significantly than anticipated starting in May.

Market experts warned that the combination of heightened oil production and a weakened global economic outlook could exert downward pressure on oil prices, ushering in a new volatile market phase.

While energy had been exempt from the recent tariffs, the broader implications of Trump's trade war could impact oil demand, leading Goldman Sachs analysts to revise their oil price projections for 2025.

Yahoo Finance senior business reporter Ines Ferre provides comprehensive coverage of the latest stock market developments and financial news.