Oil prices surged, marking their first weekly gain in three, driven by optimism surrounding upcoming trade talks between the United States and China, as well as a new trade deal between the U.S. and the United Kingdom.
Brent crude, the global benchmark for oil, rose 1.7% to settle at $63.91 per barrel, while West Texas Intermediate (WTI), the U.S. oil benchmark, jumped 1.85%, closing at $61.02 per barrel. This increase followed a week of rising optimism as investors looked ahead to key trade discussions that could ease tensions between the world’s two largest economies and potentially boost global oil demand.
From the previous week’s close, both Brent and WTI saw a combined increase of about 4.3%. However, despite the recent uptick, both benchmarks are still down by nearly 15% year-to-date, reflecting the broader volatility in the oil market this year.
Trade Talks and Their Impact on Oil
The boost in oil prices came ahead of an anticipated in-person meeting between U.S. and Chinese officials in Geneva on Saturday to discuss ongoing trade disputes. The primary goal of these talks is not to finalize a trade deal but rather to de-escalate tensions between the two economic giants, according to Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“The goal isn’t to seal a trade deal – that will probably take months, if not years – but to de-escalate tensions between the two countries. And who knows, maybe they’ll agree to pause tariffs while discussions continue,” Ozkardeskaya said.
Read More: Trade War Worsens China’s Deflation Crisis Amid Global Economic Strain
The meeting will see U.S. Treasury Secretary Steven Mnuchin engage in talks with China’s Vice Premier He Lifeng in Switzerland. These discussions come after over a year of trade battles that have caused disruptions in global trade and affected the demand for oil. China, as a leading consumer of oil, plays a significant role in global energy markets, and any positive developments in Beijing’s economic stance are crucial for oil price fluctuations.
U.S.-UK Trade Deal Adds to Optimism
In addition to the U.S.-China trade talks, the oil market also saw a boost from the announcement of a new trade deal between the United States and the United Kingdom. The historic deal, finalized on Thursday, will eliminate tariffs on British steel and aluminum exports to the U.S. and reduce the tariff on some UK-made cars from 27.5% to 10%.
U.S. President Donald Trump hailed the agreement, emphasizing that it would affirm reciprocity and fairness in international trade. “With this deal, the UK joins the United States in affirming that reciprocity and fairness is an essential and vital principle of international trade,” he said. The reduction or elimination of non-tariff barriers on American products will further solidify the trading relationship between the two countries and support oil prices.
Impact of U.S. Sanctions on Iran
The U.S. has also continued to exert pressure on Iran’s oil exports, adding to market uncertainty. On Thursday, new sanctions were imposed on Iranian oil shipments, targeting three port terminal operators and a “teapot” refinery in China. These sanctions are part of a broader effort by the U.S. to curb Iranian oil exports, which have been a point of contention in global energy markets.
Simultaneously, the U.S. is negotiating with Iran over its nuclear program. If a deal is reached, it could pave the way for sanctions relief, potentially increasing the supply of Iranian oil to the market. These developments have added further complexity to the global oil outlook, creating both upward and downward pressures on prices.
Also Read: OPEC+ Signals Bold Supply Increase, Oil Prices May Fall Further
OPEC’s Supply Boost
In addition to geopolitical factors, the market is also reacting to the announcement made by OPEC and its allies, including Russia, to boost oil supply in June. The increase in supply is expected to apply downward pressure on oil prices in the medium term, as concerns over oversupply and lower demand expectations continue to weigh on the market.
“The medium-term outlook remains comfortably bearish given higher supply and lower demand expectations,” Ozkardeskaya remarked, suggesting that while short-term gains are possible, the overall market remains vulnerable to future price declines.
India-Pakistan Tensions and Their Impact on Oil Demand
As tensions rise between India and Pakistan, investors are also watching closely the potential impact on oil demand in South Asia. India, the third-largest economy in Asia, is a major consumer of oil, with daily crude demand estimated at 5.4 million barrels. Pakistan, while smaller, still contributes to regional oil demand with a daily requirement of about 0.25 million barrels.
Rohan Goindi, a senior analyst at Rystad Energy, noted that as military tensions escalate, both countries may increase crude procurement to meet rising energy demands. “Diesel demand is likely to rise amid increased military mobilization, while airline fuel consumption declines due to airspace closures and rerouted flights,” Goindi said.
The conflict’s impact on crude demand in the region could further influence oil prices, especially if tensions lead to disruptions in supply chains or refinery operations.
In The End
The market continues to navigate these complex geopolitical and economic factors, oil prices remain sensitive to developments in trade negotiations, geopolitical tensions, and global supply-demand dynamics.
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