Crude Oil Market Update – WTI Rises on Trade Truce Hopes but Global Supply Concerns Persist
West Texas Intermediate (WTI) crude futures climbed to $62.4 per barrel on Tuesday, notching a fourth consecutive daily gain and reaching a two-week high. The short-term rally in oil prices is primarily driven by the 90-day tariff truce between the United States and China, the world’s two largest oil-consuming nations. This temporary reprieve in trade tensions has revived market optimism, reducing some of the macroeconomic risks that had earlier dampened sentiment in energy markets.
Key Drivers Behind the Rise:
US-China Trade Truce:
The agreement to suspend new tariffs for 90 days has sparked hopes of renewed trade negotiations.
Markets interpret this as a positive signal for global economic growth, thereby improving the outlook for fuel demand.
Averted escalation in the trade war alleviates fears that oil consumption growth in both nations would significantly weaken.
Middle East Geopolitics:
US President Donald Trump’s regional tour, beginning in Saudi Arabia, has heightened geopolitical attention on the Middle East.
Saudi Arabia’s current stance to increase oil production as a punitive measure for non-compliant OPEC members adds volatility.
The internal OPEC dynamic is placing downward pressure on prices, counterbalancing the positive trade news.
OPEC Production Increases:
OPEC output rose by over 411,000 barrels per day (bpd) in May, overshooting expectations.
This increase, particularly when global demand remains uncertain, adds to supply-side concerns and limits upside price momentum.
Market Backdrop – April to May Slide:
WTI crude remains down over 10% from early April, when escalating US tariff threats initially spooked markets.
The past month saw investors pricing in lower global growth and reduced transportation and industrial fuel consumption.
Why This Matters:
Short-term optimism is building, but the 90-day truce is a fragile and temporary fix. Markets are still heavily exposed to the risk that negotiations could fail, reigniting trade hostilities and dampening energy demand again.
Simultaneously, OPEC’s supply-side dynamics continue to present a challenge. Increased production—driven more by political jockeying than demand alignment—creates a risk of oversupply, especially if demand doesn’t rebound swiftly.
The intersection of demand-side relief (via trade truce) and supply-side risk (via OPEC overproduction) sets the stage for a volatile quarter in crude markets. Prices could remain range-bound or exhibit sharp movements based on news flow.
Conclusion:
While the WTI rally to $62.4/bbl reflects market relief over geopolitical and trade-related developments, underlying fundamentals remain mixed. Traders are likely to watch two key fronts: (1) progress or breakdown in US-China negotiations over the next three months and (2) how OPEC+ members adjust production quotas amid shifting global demand.
Expect continued price volatility as crude markets attempt to reconcile geopolitical headlines with macroeconomic fundamentals. If the truce fails or OPEC oversupply worsens, the current recovery could quickly reverse. Conversely, any meaningful breakthrough in trade talks or a coordinated supply cut could provide the catalyst for a more sustained rally beyond the $65–$70 range.