Crude oil strengthens in anticipation of results from U.S.-China trade negotiations.
Oil prices soared on Tuesday as the world held its breath for the outcome of US-China trade talks that could pave the way for easing tensions and boosting fuel demand. Investors took a gamble on Brent crude, which climbed 28 cents, or 0.4%, to $67.32 a barrel, and US West Texas Intermediate crude, which shot up 23 cents, or 0.4%, to $65.52.
Markets had reason to be optimistic after Brent crude hit a high of $67.19 on Monday – the highest since April 28 – thanks to the prospects of a US-China trade deal. The discussions were ongoing in London, with top officials aiming to alleviate the escalating tension that had expanded beyond tariffs to rare earth restrictions, all risking supply chain disruptions and slower growth.
Oil prices had already started recovering due to dwindling demand concerns as the trade spat between Washington and Beijing got resolved and a promising US jobs report came out. However, North American supply faced risks due to wildfires in Canada, and this was flagged by Goldman Sachs analysts.
President Donald Trump declared that the talks were proceeding favorably and he was only receiving positive reports from his team in London. A trade deal between the US and China could strengthen the global economic outlook and stimulate demand for commodities, including oil.
Tensions with Iran continued to simmer, with the nation claiming it would soon submit a counterproposal for a nuclear deal in response to a US offer it deems unacceptable. Iran, the third-largest oil producer among members of OPEC, would be able to export more oil if the US sanctions were eased, potentially lowering global crude prices.
Intriguingly, a Reuters survey indicated that OPEC oil output had increased in May, although the boost was limited as Iraq pumped below target to offset earlier overproduction, and Saudi Arabia and the United Arab Emirates (UAE) made smaller hikes than allowed. OPEC+, a group responsible for about half of the world's oil production (including OPEC members and allies like Russia), was quickening its plan to unwind its most recent layer of production cuts.
Daniel Hynes, senior commodity strategist at ANZ, noted that the likelihood of further OPEC supply hikes loomed over the market. If OPEC were to permanently shift to a market-driven strategy, the oil market could slide into a considerable surplus in the first half of 2025, likely leading to lower oil prices, Hynes said in a note.
The escalating US-China trade talks, if successful, could further boost fuel demand, leading to potential increases in oil prices as markets anticipate the outcome in London. Simultaneously, the oil and gas industry is closely monitoring the ongoing discussions, as a potential deal could stimulate the global economy and the demand for commodities, including goods from the energy sector. However, the oil market could face a surge in supply due to OPEC+ plans to unwind its production cuts, potentially leading to lower oil prices in the first half of 2025, according to analysts.
