Oil Finds Stability Amid US-China Trade Truce, But Risks Linger

The global oil market has entered a precarious equilibrium in early 2025, with West Texas Intermediate (WTI) prices hovering around $85 per barrel—a level analysts attribute to a combination of supply discipline, demand moderation, and cautious optimism over U.S.-China trade talks. However, the fragile nature of this stability is underscored by simmering geopolitical tensions, unresolved trade disputes, and the volatility inherent to a market where geopolitical events can upend balance overnight.

The Trade Truce and Its Impact on Oil Demand

The 90-day U.S.-China trade truce announced in late May 2025, which paused new tariff hikes and established a working group to address core disputes, has alleviated some near-term uncertainty for global supply chains. While the agreement did not resolve longstanding issues like technology transfer rules or state subsidies, it has reduced the risk of an immediate escalation in trade hostilities that could further disrupt energy markets.

The truce has particularly benefited Asian refining hubs, where Chinese state-owned enterprises have ramped up refinery runs to stabilize regional crude demand. This activity has offset some of the headwinds from slowing global growth: the International Monetary Fund (IMF) now forecasts global GDP growth of just 2.8% for 2025, downgraded from its 2024 projections due in part to the trade war’s drag on trade volumes.

Supply-Side Constraints and OPEC+’s Role

The stabilization of oil prices is also rooted in supply-side factors. OPEC+ members’ decision to extend production cuts of 2 million barrels per day (bpd) through mid-2026 has provided a critical floor for prices. The cartel’s resolve has been tested by internal divisions—Saudi Arabia and Russia have sparred over output quotas—but the group’s adherence to the agreement has so far outweighed dissent.

Meanwhile, U.S. shale producers face headwinds of their own. Labor shortages and capital constraints have limited production growth, even as companies like Pioneer Natural Resources and Devon Energy report pent-up demand from underinvested infrastructure. The U.S. Energy Information Administration (EIA) estimates that shale output will grow by just 200,000 bpd this year, far below the 1 million bpd gains seen in 2022.

Demand Risks and the Role of Renewables

On the demand side, the IEA notes that slowing economic activity and accelerating renewable energy adoption have capped oil’s upside. Global oil demand growth is projected to slow to 1.2 million bpd in 2025, down from 2.4 million bpd in 2024, as solar and wind power displace fossil fuels in electricity generation. In China, state-backed electric vehicle (EV) manufacturers like BYD are capturing over 40% of domestic car sales, further dampening gasoline demand.

The Wild Cards: Geopolitics and Trade Uncertainty

Despite the current calm, risks loom large. The U.S.-China trade talks remain fraught with preconditions. China insists that the U.S. remove existing tariffs—a demand Washington has rejected—and the phased approach to reforms outlined in the truce could collapse if either side perceives bad faith.

Geopolitically, Middle Eastern tensions—particularly between Iran and its Gulf neighbors—and Russia’s post-sanctions oil export policies add further uncertainty. A sudden disruption in Middle East supplies, such as a sabotage attack on Saudi infrastructure, could send prices soaring. Conversely, a breakthrough in trade talks that boosts global growth could lift demand beyond current forecasts.

Conclusion: A Delicate Balance

Investors weighing exposure to oil must balance the stabilizing forces of OPEC+ discipline and demand moderation against the risks of renewed trade conflict and geopolitical shocks. While the $85 per barrel range appears sustainable for now, the market’s sensitivity to macroeconomic and political developments means volatility remains inevitable.

Key data points reinforce this outlook:
- The IMF’s 2.8% global growth forecast for 2025 suggests limited upside for demand.
- JP Morgan’s warning of a 75–80% drop in U.S. imports from China by late 2025 highlights the trade war’s lingering impact.
- OPEC+’s production cuts have already reduced global supply by 2%, a buffer that could evaporate if compliance falters.

For investors, this environment favors hedged exposure to diversified energy firms with low leverage, such as ExxonMobil or TotalEnergies, while avoiding pure-play shale stocks reliant on high growth. The oil market’s next move will likely hinge on whether the U.S.-China truce evolves into a lasting deal—or becomes another false dawn in a decade-long trade war.

In the end, oil’s stability rests on a foundation of geopolitical caution and supply restraint. Until the U.S. and China resolve their structural disputes—or until a new shock emerges—the market will remain a tightrope between $70 and $90, with every tariff rumor or OPEC meeting capable of sending prices tumbling or soaring.