Yesterday’s unexpected announcement regarding a substantial decrease in reciprocal tariffs between the United States and China triggered a notable surge in oil prices. Brent crude experienced an increase of up to 4%, surpassing $66 per barrel, while West Texas Intermediate (WTI) reached $63.6 per barrel, according to insights from Commerzbank’s commodity analyst, Carsten Fritsch. This positive market reaction reflects the potential for increased global economic activity and, consequently, higher oil demand.
US-China Trade Discussions Provide Tailwinds for Oil Prices
“Oil prices had already exhibited a discernible upward trend on Friday, fueled by optimistic expectations surrounding the trade negotiations that transpired over the preceding weekend. The agreed-upon tariff reduction is slated to be in effect for an initial period of 90 days. Starting tomorrow, the United States will impose a 30% tariff on imports originating from China, while China will levy a 10% tariff on imports from the United States. However, the existing additional 10% tariff on US crude oil, which China implemented in February as a retaliatory measure against prior US tariffs, is expected to remain in effect,” Fritsch explained. This nuanced tariff landscape highlights the complexities that still exist within the broader trade relationship.
“The de-escalation of the trade conflict has effectively mitigated the downside risk to global oil demand. Nevertheless, securing a more enduring resolution to the trade dispute between the world’s two largest oil-consuming nations within the next three months remains paramount. One potential element of a comprehensive agreement could involve increased crude oil imports by China from the United States. Furthermore, the recent price appreciation has contributed to a renewed strengthening of the backwardation observed at the front end of the Brent futures curve,” Fritsch added. Backwardation, where near-term futures contracts trade at a premium to longer-dated contracts, typically signals tighter supply conditions and heightened market optimism. Market analysts are also closely watching upcoming inventory data from the Energy Information Administration (EIA) and any statements from OPEC+ regarding future production levels, as these factors could further influence price movements in the near term. The market’s overall sentiment remains cautiously optimistic, contingent on continued progress in US-China trade relations and the absence of any unforeseen geopolitical events.
