Oil Prices Rebound Amid Trade War De-escalation Hopes

Oil prices experienced gains for the second consecutive session on Friday, bolstered by optimism surrounding a potential de-escalation of trade tensions between the United States and China. However, the market is still poised for a weekly decline of approximately 2% due to persistent concerns regarding oversupply.

Brent crude futures increased by 31 cents, reaching $66.85 a barrel as of 0650 GMT, but have decreased by 1.7% over the course of the week.

US West Texas Intermediate (WTI) crude saw a rise of 35 cents, settling at $63.12 a barrel, after a 2.4% drop throughout the week.

According to Anh Pham, a senior analyst at LSEG, today’s slight increase in oil prices is attributed to market reactions to indications of reduced tensions related to US tariffs and a possible change in the Federal Reserve’s policy approach, contributing to a broader market recovery.

Pham noted that on a weekly basis, prices have declined due to ongoing concerns about oversupply from OPEC+, coupled with uncertainty in the demand outlook due to persistent trade tensions. A stronger US dollar has also exerted downward pressure on crude prices.

US President Donald Trump stated on Thursday that trade negotiations between the US and China are in progress, countering previous claims from China that no discussions had taken place.

China is reportedly considering exemptions for some US imports from its 125% tariffs and is requesting businesses to submit lists of potentially eligible goods, signaling growing concerns in Beijing regarding the economic repercussions of the trade war.

China increased its tariffs in response to Trump’s announcement of higher levies on Chinese goods.

Earlier this month, oil prices experienced a downturn following the imposition of tariffs, which sparked concerns about global demand and triggered a sell-off across financial markets.

Growing anxieties surround potential oversupply. Several OPEC+ members have reportedly suggested accelerating oil output increases for the second consecutive month in June.

Negotiations to cease the conflict in Ukraine are advancing positively, although certain specific aspects of a prospective agreement still require resolution, as conveyed by Russian Foreign Minister Sergey Lavrov in a recent interview.

Potential Impact of Easing Sanctions

A resolution to the conflict in Ukraine, coupled with the easing of sanctions, could potentially lead to an increase in the availability of Russian oil in global markets.

Russia, a key member of the OPEC+ group, ranks among the world’s leading oil producers, alongside the US and Saudi Arabia.

JPMorgan Commodities Research analysts highlighted that global oil demand has shown improvement recently, primarily driven by increased gasoline consumption in the US, while demand for distillates in the country has remained strong due to persistent cold weather extending into April.

Nevertheless, they noted that demand in the first two weeks of the month was subdued, resulting in a 200,000 barrel-per-day deficit compared to their current estimates for the month.