Trade Talks Support Short-Term Rally, But Structural Headwinds Persist
1. Trade Optimism Reignites Oil Market Momentum
Oil prices extended gains this week, with Brent crude edging toward $63 per barrel and WTI hovering near $60, buoyed by renewed optimism around US-China trade negotiations. The market responded positively after a previous session’s rally of over 3%, reflecting hopes that the world’s two largest economies may finally de-escalate tensions that have weighed heavily on global demand expectations.
📊 [Chart 1: Brent 7-Day Price Performance with Key Event Annotations]
2. Diplomatic Developments: US and China Back at the Table
US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer are scheduled to meet Chinese officials in Switzerland later this week—the first formal engagement since sweeping tariffs were imposed by the Trump administration. While concrete outcomes remain uncertain, the resumption of dialogue alone has boosted market sentiment and may mark a shift in bilateral economic strategy.
📊 [Chart 2: Top five US export products by destination country, 2023]
3. Persistent Supply Concerns Weigh on Medium-Term Outlook
Despite this bounce, the broader oil trend since late January has remained soft, driven largely by OPEC+’s ongoing commitment to restore previously idled production. Concerns about oversupply remain prevalent, particularly if global demand fails to re-accelerate in the second half of the year. Market participants continue to price in a more structurally bearish backdrop for crude.
📊 [Chart 3: Global Oil Demand vs. OPEC+ Supply Increase (2023–2025 Projection)]
| OPEC+ crude oil production1 | ||||||
| million barrels per day | ||||||
| Feb-25 | Mar-25 | Mar-25 | Mar-25 | Sustainable | Eff Spare Cap | |
| Supply | Supply | vs Target | Implied Target | Capacity2 | vs Mar3 | |
| Algeria | 0.9 | 0.9 | -0.01 | 0.91 | 0.99 | 0.08 |
| Congo | 0.24 | 0.24 | -0.04 | 0.28 | 0.27 | 0.03 |
| Equatorial Guinea | 0.06 | 0.06 | -0.02 | 0.07 | 0.06 | 0.01 |
| Gabon | 0.23 | 0.24 | 0.06 | 0.18 | 0.22 | 0 |
| Iraq | 4.3 | 4.32 | 0.44 | 3.88 | 4.87 | 0.55 |
| Kuwait | 2.47 | 2.51 | 0.1 | 2.41 | 2.88 | 0.37 |
| Nigeria | 1.44 | 1.4 | -0.1 | 1.5 | 1.42 | 0.02 |
| Saudi Arabia | 8.96 | 9.01 | 0.05 | 8.96 | 12.11 | 3.1 |
| UAE | 3.28 | 3.26 | 0.35 | 2.91 | 4.28 | 1.02 |
| Total OPEC-9 | 21.88 | 21.94 | 0.83 | 21.1 | 27.1 | 5.17 |
| Iran | 3.39 | 3.29 | 3.8 | |||
| Libya | 1.24 | 1.2 | 1.23 | 0.03 | ||
| Venezuela | 0.97 | 0.92 | 0.89 | 0 | ||
| Total OPEC | 27.48 | 27.35 | 33.02 | 5.2 | ||
| Azerbaijan | 0.47 | 0.47 | -0.08 | 0.55 | 0.49 | 0.02 |
| Kazakhstan | 1.82 | 1.82 | 0.39 | 1.43 | 1.8 | 0 |
| Mexico5 | 1.47 | 1.45 | 1.59 | 0.13 | ||
| Oman | 0.76 | 0.76 | 0.01 | 0.75 | 0.85 | 0.09 |
| Russia | 9.08 | 9.07 | 0.12 | 8.95 | 9.76 | |
| Others | 0.71 | 0.72 | -0.15 | 0.87 | 0.86 | 0.14 |
| Total Non-OPEC | 14.31 | 14.3 | 0.29 | 12.56 | 15.34 | 0.38 |
| OPEC+ 18 in Nov 2022 deal | 34.73 | 34.78 | 1.12 | 33.66 | 40.85 | 5.42 |
| Total OPEC+ | 41.79 | 41.64 | 48.36 | 5.58 | ||
4. Shale Producers Signal Slowdown Amid Price Pressures
Weak price signals are beginning to impact the US shale sector. Diamondback Energy Inc., the largest independent producer in the Permian Basin, warned that persistently low crude prices could trigger a slowdown in output. With tighter capital discipline and elevated breakeven costs, producers are likely to scale back investments if pricing fails to recover meaningfully.
📊 [Chart 4: US Rig Count and Permian Output vs. WTI Crude]
📊 [Chart 5: Shale Producers’ Breakeven Prices vs. Output Volumes]
5. US Crude Output Forecast Revised Downward
In its latest report, the US Energy Information Administration (EIA) lowered its 2025 crude production forecast to 13.42 million barrels per day, down from earlier estimates. Notably, the revision does not account for the latest OPEC+ supply expansion, potentially adding further downside risk to future outlooks.
📊 [Chart 6: EIA Annual Forecast Revisions for US Crude Output (2024–2025)]
6. Inventory Data Hints at Short-Term Tightening
According to the American Petroleum Institute, US crude inventories fell by 4.49 million barrels last week, while stockpiles at the Cushing, Oklahoma storage hub also declined. While these drawdowns could reflect short-term tightening, analysts await official EIA data due later on Wednesday for confirmation and further market direction.
📊 [Chart 7: Weekly US Crude Inventory Changes – Last 12 Weeks]
7. Conclusion: Trade Hopes Offer Lift, But Fundamentals Remain Fragile
The resumption of US-China trade talks has undoubtedly sparked a temporary relief rally in oil markets. However, the structural landscape—marked by surplus risk, cautious US shale activity, and rising OPEC+ output—continues to exert downward pressure. Traders and institutional investors should remain alert to both geopolitical developments and supply-side surprises, which could further tilt the risk-reward profile in coming weeks.
📊 [Chart 8: Crude Oil Volatility Index (OVX) vs. Brent Price]
Analyst Summary:
- Bias: Neutral-to-bearish short term; cautiously constructive if trade diplomacy progresses.
- Watchlist: OPEC+ ministerial meetings, EIA production and inventory reports, Chinese refinery throughput data, and updates on global shipping demand.
- Risks: Policy shifts in China, macroeconomic data surprises (PMIs, CPI), and unplanned supply disruptions (Middle East, Venezuela).
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