Crude oil prices are poised to close the week with gains, buoyed by renewed optimism over a potential trade resolution between the United States and China.

The detente between the two economic giants has fueled hopes for improved global demand, offering some respite to oil markets after several weeks of price declines.

At the time of reporting, Brent crude traded at $64.64 per barrel, while West Texas Intermediate (WTI) stood at $61.72 per barrel. Both benchmarks have posted modest increases of around 1% from the beginning of the week, reversing a downward trend triggered by economic and geopolitical pressures.

The primary driver of this rebound appears to be news of a ceasefire in the ongoing trade tensions between Washington and Beijing. Market participants are increasingly optimistic that the two powers will reach a durable agreement that could ease tariffs and revive cross-border industrial activity—key to boosting oil consumption.

Geopolitical Undercurrents Temper Market Enthusiasm

However, analysts warn that the current upswing may be short-lived, as new geopolitical developments and energy demand forecasts temper market sentiment. Notably, reports indicating progress in negotiations for a new U.S.-Iran nuclear deal have reintroduced downward pressure on prices. A thaw in relations between the two countries could lead to the lifting of sanctions and a re-entry of Iranian crude into global markets, potentially swelling supply.

“While trade peace talks between the U.S. and China offer temporary relief, the market remains cautious,” said energy analyst Serkan Altun. “If Iranian oil re-enters the market in volume, it could overwhelm modest demand growth and lead to a surplus.”

IEA Forecasts Demand Slowdown Despite Trade Hopes

Adding to the market’s cautious outlook, the International Energy Agency (IEA) released a sobering update to its May Oil Market Report. While oil demand grew by 990,000 barrels per day in Q1 2025, the agency expects a marked slowdown to just 650,000 bpd for the remainder of the year. The IEA cited persistent economic headwinds and surging electric vehicle sales as the primary reasons for the anticipated cooling in demand.

The IEA has developed a reputation for conservative projections in recent years, some of which have required upward revisions when market realities contradicted initial expectations. Nevertheless, their latest assessment highlights key structural challenges facing traditional energy markets.

Asia’s Oil Appetite Remains Strong

Despite gloomy forecasts, certain indicators provide reasons for optimism. Chinese oil imports have rebounded strongly at the start of the second quarter, while India’s oil intake surged to a record high in March, driven by industrial and transportation demand.

In an unexpected twist, Japan’s major refiners have reportedly begun slowing their transition toward low-carbon alternatives, shifting focus back to traditional oil investments. The move signals that even developed economies may not entirely turn away from hydrocarbons amid current geopolitical instability and energy security concerns.

Crude oil’s weekly gain underscores how market sentiment can pivot quickly on the back of political and diplomatic developments. While the prospect of a U.S.-China trade breakthrough provides short-term uplift, uncertainties surrounding U.S.-Iran relations, Iranian oil supply, and persistent global demand weakness continue to weigh on the long-term outlook.

Unless supported by more sustained demand growth and geopolitical stability, oil prices may continue to see-saw through the remainder of the year. As always, energy markets remain a barometer of not just supply and demand, but also the shifting tides of international diplomacy. (ILKHA)