Oil Prices Creep Up as US-China Trade Talks Outcome Awaited

Oil prices are inching higher this week. Brent crude climbed to about $67.30 per barrel, while U.S. West Texas Intermediate hit roughly $65.50. We see this rise because traders are watching the U.S.-China trade talks closely. These talks are happening in London, and both sides seem more open to easing tariffs.

When big economies like the U.S. and China talk in a friendly way, it hints at more trade. More trade means more oil used for shipping, shipping, and making things. That lifts oil demand. We also noticed that wildfires in Canada have slowed some production. That adds a bit of worry about supply.

Oil markets remain wary due to ongoing uncertainty. We want to know: Will the trade talks bring a deal or just talk?

That answer could steer prices up or down. Let’s break down what’s driving oil prices now, what could change them, and what might come next.

Current Price Movements & Key Triggers

Oil markets are on an upward trend, with Brent jumping 3.7% to $66.28 and WTI rising 4% to $63.43 after U.S.-China trade tensions eased. The momentum carried into the week, as U.S. crude futures closed 1.1% higher Monday, with Brent up 0.9%.

What’s behind this rise? Two key factors are fueling this upward trend.

First, optimism around trade negotiations is lifting market response. The 90-day tariff freeze has improved demand forecasts, and potential tariff reductions could stimulate global commerce. It led to increased shipping activity and higher oil consumption.

Second, Canada’s wildfires are disrupting supply. With Alberta’s fires cutting roughly 344,000 barrels per day (7% of national output), concerns over tightening supply are growing. As a result, hedge funds are increasingly betting on rising oil prices.

Finally, OPEC+ hasn’t cut production. Instead, they confirmed a July increase of 411,000 bpd. That should boost supply, but markets saw it as expected. The wildfires overshadowed it.

Historical Precedents

Past trade talks have influenced oil markets, too. Back in 2018–2019, oil dropped around 15% when tariffs between the U.S. and China ramped up. When they reached Phase One in early 2020, prices bounced back by about 8%. Still, those were short-term shifts. The deeper story was always supply and long-term demand.

Usually, when trade worries ease, oil gets a lift first. But the lift often fades if supply keeps growing or demand slows. We’ve seen that pattern again now.

Supply-Side Dynamics

Canada’s Wildfires

Canada’s raging wildfires, especially in Alberta, have severely disrupted oil production, forcing the shutdown of around 344,000 barrels per day, equivalent to 7% of the province’s total output. Major operations, including Cenovus’s Christina Lake and MEG Energy’s facilities, have halted temporarily. 

Although some sites resumed activity following recent rainfall, the wildfire threat remains, keeping markets on edge. These production cuts are tightening the already strained global supply landscape.

OPEC+ Dynamics

In its June meeting, OPEC+ decided to maintain its production strategy, confirming an increase of 411,000 barrels per day in July, mirroring its May expansion. This move, widely anticipated by markets, came after negotiations between Saudi Arabia and Russia.

Analysts say the planned increases were already factored into prices. However, the added supply risk from Canada’s wildfires has lent further support to global oil prices.

Non‑OPEC Growth & U.S. Inventory

OPEC+ holds its course, and production outside the alliance is climbing. The U.S., Brazil, Guyana, and Kazakhstan are ramping up output, injecting fresh supply into global markets. In the U.S., crude inventories rose unexpectedly by 4.3 million barrels in early May. 

Yet, a sharp drawdown of 3.3 million barrels last week, the largest in months, shows how volatile stock levels remain.

Demand Outlook & Macroeconomic Signals

A good trade deal between the U.S. and China could boost demand. Lower tariffs mean more goods shipped and more oil burned. That’s positive for prices.

But the global picture is mixed. Goldman Sachs cut its forecast, saying Brent might average $60 in 2025 and $56 in 2026. They see a big supply surplus of 800,000 bpd this year, rising to 1.5 million in 2026. That could limit long-term gains.

China’s growth is still weak. Its factory sector is sluggish, and its property market is shaky. That could keep demand lower. The OECD trimmed its world growth forecast, fearing trade tensions may slow things down.

Market Response & Technical Indicators

Oil has gained for two days in a row, fueled by wildfires and talk of trade easing. We’re seeing Brent near $67 and WTI close to $65. Technical charts show prices breaking short-term resistance lines.

But sentiment is mixed. Analysts warn the rally might be short-lived. Rising supply from OPEC+ and non-OPEC countries could push prices lower again.

Risks & Tail Risks

Here are the key risks traders must watch:

1. Trade Talks Stall
   If no deal comes, prices may slide fast. Tension could scare demand forecasts.
2. Wildfires Persist or Spread
   If Canada’s blazes continue or damage infrastructure, disruptions could stretch longer.
3. Geopolitical Shocks
   Iran nuclear talks or Russia-Ukraine news could rattle markets.
4. OPEC+ Shift
   A surprise production cut from OPEC+ could send prices higher. Or a bigger cut could occur if U.S. inventories keep growing.
5. Weak Demand
   A downturn in China or global recession fears would weigh heavily. Goldman sees potential for Brent below $50 if conditions worsen.

Final Words & Outlook

We’re in a tight market zone. Wildfires have knocked out Canadian barrels. Trade optimism is offering support. But supply is growing fast everywhere else. Demand is still weak in key markets like China.

In the near term, prices may reach above $70 if fires continue and trade heads toward a deal. But by the end of 2025, they’re likely to fall toward $60 or below if the supply surplus continues.

So, what should we watch?

• The outcome of U.S.-China talks in London.
• Progress on Canada’s wildfire containment.
• OPEC+ decisions in July.
• Economic growth reports from the U.S., China, and OECD.

For now, we expect choppy moves. Traders and businesses need to stay sharp. The next few weeks could bring big swings in oil prices.

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Disclaimer:

This content is made for learning only. It is not meant to give financial advice. Always check the facts yourself. Financial decisions need detailed research.