WTI Oil Rises on Trade Optimism as U.S. Prepares for Crucial China Talks

The first week of May 2025 saw WTI crude oil prices surge by over 6% amid escalating optimism around U.S.-China trade negotiations and the conclusion of a U.S.-UK trade deal. With prices climbing from $56.76 to a weekly high of $60.42 by midweek, the market is now bracing for the outcome of critical talks in Geneva. However, this upward momentum faces headwinds from OPEC+ production decisions, U.S. supply dynamics, and lingering geopolitical risks.

Trade Optimism Fuels the Rally

The surge in oil prices began with signals of progress in U.S.-China trade relations. After months of tension, the two economic superpowers are set to reconvene in Geneva on May 10, led by U.S. Treasury Secretary Scott Bessent and China’s Vice Premier He Lifeng. The talks aim to reduce the punishing 145% tariffs on Chinese goods, with the U.S. proposing a cut to 80% if negotiations proceed smoothly.

This optimism pushed prices to a peak of $58.98 on May 7, but a brief dip followed on May 8 as OPEC+ announced plans to boost output by 411,000 barrels per day (bpd) in June. The cartel’s move underscored its strategy to balance supply and demand, though traders remain skeptical of its ability to offset global tightness.

Supply-Side Pressures and Geopolitical Crosscurrents

While trade optimism has dominated headlines, underlying supply constraints continue to underpin prices. U.S. crude production dipped to 13.367 million bpd by late May 2—a slight retreat from record highs—as shale drillers face rising operational costs. Meanwhile, U.S. crude inventories remain 7.3% below the five-year seasonal average, signaling persistent demand-supply imbalances.

Geopolitical risks also loom large. U.S. sanctions on Russian oil tankers and Iranian crude purchases have introduced volatility, while Yemen’s fragile ceasefire negotiations threaten to disrupt Red Sea oil shipments. These factors, combined with OPEC+’s output plans, create a precarious equilibrium for prices.

The U.S.-UK Deal: A Catalyst for Global Trade?

The U.S.-UK trade deal, finalized on May 8, eased tariffs on steel and aluminum, signaling a broader shift toward de-escalation. While the pact’s direct impact on oil is limited, its symbolic value cannot be understated. Investors now see it as a template for resolving broader trade disputes, including those with China.

This sentiment has bolstered the June WTI futures contract, which closed at $60.91 on May 10—up 1.7% from the prior day and marking a weekly gain exceeding 4%.

Conclusion: Balancing Hope and Reality

The oil market’s trajectory now hinges on two variables: the success of U.S.-China talks and the resilience of supply chains. If tariffs are reduced, global demand for crude could rebound, potentially pushing prices toward $65 by summer. However, OPEC+’s output hike, U.S. shale constraints, and geopolitical risks could cap gains.

The data paints a nuanced picture:
- Trade-Driven Gains: A 6.15% weekly rise in WTI prices reflects market confidence in a diplomatic breakthrough.
- Supply Tightness: Inventories 7.3% below the five-year average and stagnant U.S. production highlight ongoing scarcity.
- Policy Risks: OPEC+’s 411,000 bpd increase contrasts with U.S. sanctions and Middle East instability, creating uncertainty.

Investors should remain cautious but opportunistic. A positive outcome in Geneva could sustain momentum, while any misstep might trigger a correction. For now, the market is betting on diplomacy—until reality intrudes.