Trade Truce Ignites the Pump: Why U.S.-China Tariff Cuts Signal a Bullish Turn for Oil

The U.S.-China tariff truce announced on May 12, 2025, has reignited the global energy market, sending NYMEX petroleum futures soaring as fears of a demand-destroying trade war recede. With tariffs slashed by over 100 percentage points and a 90-day ceasefire declared, this geopolitical shift is a critical catalyst for a sustained recovery in crude prices. Investors should seize this moment to position in crude oil futures (CL) or ETFs like the United States Oil Fund (USO), as macro tailwinds align to push oil toward $70/bbl—and beyond.

Geopolitical Thaw = Demand Catalyst

The immediate 3-4% surge in oil prices—pushing WTI to $63/bbl and Brent to $66/bbl—reflects more than just a knee-jerk market reaction. By easing trade barriers, the U.S. and China have directly addressed a key drag on global industrial activity. With tariffs on Chinese imports dropping from 145% to 30% and U.S. goods entering China at 10% instead of 125%, cross-border manufacturing and trade flows will rebound. This is a direct lift for crude consumption, as factories ramp up production, shipping activity picks up, and consumers face lower prices for energy-intensive goods.

The tariff cuts also alleviate broader economic anxiety. As Asian stock markets surged 4% and U.S. futures markets rallied pre-announcement, investors are pricing in a reduced risk of a synchronized global slowdown. This sentiment is critical for oil, a pro-cyclical asset that thrives when the global economy is firing on all cylinders.

OPEC+ Plays Defense, Not Offense

While the tariff truce boosts demand, OPEC+ is ensuring supply doesn’t overwhelm the market. Saudi Arabia’s threat to add 2 million bpd if other members overproduce—and its subsequent acceleration of output hikes—highlights the cartel’s focus on stability. Unlike 2020, when OPEC flooded the market, today’s strategy is to balance growth: boosting production just enough to meet rising demand while keeping prices above $60/bbl.

This supply discipline is underpinned by OPEC’s renewed cohesion. With Iran’s oil exports still constrained by U.S. sanctions and Russia’s output plateauing, the cartel has room to manage prices. For investors, this means a “sweet spot”: demand rising without oversupply, and OPEC+ acting as a floor under prices.

Refining Sector: The Undervalued Lever

While crude futures get the spotlight, the refining sector offers even higher leverage to the demand recovery. Margins for refiners, which had languished in the $20s per barrel, are set to rebound as:
- Lower tariffs reduce input costs for crude and feedstocks.
- Inventory shortages (gasoline inventories at -3%, diesel at -13% vs. 5-year averages) create a pricing power for refiners.

Take Marathon Petroleum (MPC), which surged 6% on May 12 alone. Its refining-heavy model and exposure to U.S. Gulf Coast infrastructure make it a prime beneficiary of stronger demand. Similarly, Valero (VLO) and Phillips 66 (PSX) offer both crude price exposure and refining upside.

Policy Shifts: The Macro Backdrop

The tariff cuts are part of a broader geopolitical pivot toward economic pragmatism. Key signals for oil investors:
1. U.S. Strategic Petroleum Reserve (SPR) Funding: The $1.321 billion allocated to replenish the SPR signals a recognition of oil’s strategic importance. Refilling at current prices is a bullish move—it’s akin to a central bank buying bonds to stabilize yields.
2. Renewables Uncertainty: With biofuel production down 40–60% since Q4 2024, the refining sector’s struggles highlight the fragility of the “green transition.” This creates a floor for oil demand as alternatives struggle to scale.

The Trade: Buy Now, Lock in Gains Later

The market’s focus on the 90-day tariff truce expiration (August 11) is misplaced. This is a structural shift, not a temporary blip. Even if tariffs rise again in August, the precedent of de-escalation reduces the risk of a full-blown trade war.

Action Items:
- Buy NYMEX crude futures (CL): Aim for $65/bbl as a near-term target, with $70/bbl achievable by Q4 2025.
- Layer in USO ETFs: For retail investors, USO offers daily exposure to WTI futures.
- Add refining stocks: MPC, VLO, and PSX offer double-digit upside as margins recover.

Final Call: The Clock is Ticking

The U.S.-China trade truce isn’t just a reprieve—it’s a signal. With global demand rebounding, OPEC+ managing supply, and policy makers prioritizing energy security, crude’s upward trajectory is clear. The next two months will see buyers dominate as traders position for summer driving season and the next phase of trade talks. Now is the time to act.

Don’t miss this confluence of geopolitical tailwinds, OPEC discipline, and refining leverage. The pump is primed—get in before the rally leaves you behind.