Oil prices jump on trade hopes and supply concerns

[WORLD] Oil prices surged roughly 3% on Thursday, driven by renewed optimism surrounding upcoming trade negotiations between the United States and China—both top global oil consumers.

Brent crude futures advanced by US$1.72, or 2.8%, closing at US$62.84 per barrel. Meanwhile, US West Texas Intermediate (WTI) crude gained US$1.84, or 3.2%, to settle at US$59.91.

The price rebound was also fueled by signs of tightening supply. US crude stockpiles dropped more than anticipated last week, with the Energy Information Administration reporting a 4.3 million-barrel draw, surpassing analyst expectations and pointing to robust demand ahead of the summer travel season.

Adding to market optimism, US Treasury Secretary Scott Bessent is slated to meet China’s chief economic policymaker on May 10 in Switzerland, in a bid to ease tensions in an ongoing trade war that has rattled the global economy. Analyst Ole Hvalbye of SEB noted that hopes surrounding these discussions were lending support to crude prices.

As the world’s two largest economies, a prolonged trade rift between the US and China has raised concerns over slowing growth in oil consumption.

Investors are also keeping a close eye on China’s economic trajectory. While industrial output shows signs of recovery, lackluster retail sales data has raised questions about the sustainability of fuel demand in the world's second-biggest oil market.

Analysts warned that volatility linked to tariffs may continue to unsettle energy markets. "The global risk premium that had been influencing oil prices has been replaced by a tariff premium, which will now swing with developments from the Trump administration," said Jim Ritterbusch of Ritterbusch and Associates.

In a separate trade development, US President Donald Trump and UK Prime Minister Keir Starmer unveiled a limited trade agreement, maintaining a 10% US tariff on British imports. In return, the UK agreed to cut tariffs from 5.1% to 1.8% and ease access for American goods.

Though modest in scope, the UK-US deal is viewed as a potential precursor to more comprehensive post-Brexit trade talks. The energy sector is assessing the agreement’s possible influence on North Sea crude exports, which could be affected by future tariff changes.

On the supply side, OPEC and its partners in the OPEC+ alliance are poised to increase output, a factor that could exert downward pressure on prices.

Despite plans to ramp up production, OPEC output dipped slightly in April, according to a Reuters survey, primarily due to declines in Venezuela, as well as smaller reductions in Iraq and Libya. Venezuela’s crude production has dwindled to around 500,000 barrels per day amid US sanctions and ongoing infrastructure challenges, tightening the supply of heavy crude globally.

Citi Research analysts revised their short-term Brent crude forecast downward to US$55 per barrel from US$60, while keeping their full-year projection steady at US$60.

They also flagged the potential impact of a renewed US-Iran nuclear deal. An agreement could lead Brent prices down to US$50 per barrel by boosting supply, whereas the absence of a deal might push prices above US$70.

Meanwhile, US sanctions on two smaller Chinese refiners accused of importing Iranian crude have complicated their operations. The refiners are reportedly rebranding their products to sidestep restrictions, underscoring the broader disruptions Washington’s increased pressure is causing for Iran’s primary oil customer.