Oil prices rebounded, with West Texas Intermediate (WTI) crude rising 1 per cent to settle at $US59.60 a barrel. This recovery follows a 4.2 per cent plunge on Friday, the steepest drop since May. The shift in market sentiment comes after the White House indicated a willingness to negotiate with China to ease trade tensions between the world’s two largest oil consumers. Equities also rebounded on the news, providing additional support to crude prices.
According to Razan Hilal, market analyst at StoneX, tariff headlines are exerting renewed bearish pressure on crude oil. However, Hilal noted that such tariff tensions have historically acted as short-lived demand shocks, eventually leading to more favourable trade resolutions and cyclical recoveries. Despite the planned tariffs on November 1, the US president expressed optimism about the future of trade relations with China.
Adding to market uncertainty, the US president also mentioned the possibility of supplying Ukraine with long-range Tomahawk missiles. This move could potentially increase the risk of disruptions to oil supply from Russia, a member of OPEC+. Dennis Kissler, senior vice president for trading at BOK Financial, noted that traders remain sceptical, and trade with China may remain erratic until a deal is reached, which could pressure crude prices in the near term.
Kissler added that WTI crude prices below $US60 a barrel should lead to a decline in oil rig drilling numbers, which will eventually result in a drop in US production numbers. This dynamic could provide some underlying support for oil prices in the medium term despite the immediate pressures from trade tensions and geopolitical risks.
