Oil Prices Inch Higher as Markets Weigh US-China Tariff Pause and Rising Supply

Oil prices edged up on Tuesday, supported by a temporary easing of US-China trade tensions, though gains were limited by increasing global oil supply and uncertainty over the long-term implications of the tariff truce.

Brent crude futures rose by 21 cents (0.3%) to $65.18 per barrel, while US West Texas Intermediate (WTI) crude gained 30 cents (0.5%) to reach $62.25, as of 0919 GMT. The modest gains followed a sharper rally on Monday, when both benchmarks climbed by more than 4% in response to news that Washington and Beijing had agreed to significantly reduce tariffs for at least 90 days.

The agreement, which saw the US cut duties on Chinese goods from 145% to 30% and China reduce tariffs on American imports to 10%, briefly boosted investor confidence, sending Wall Street stocks and the US dollar higher alongside crude prices.

However, analysts noted that markets are proceeding cautiously, given the lack of long-term commitments in the trade deal and underlying tensions that remain unresolved, including issues related to the US trade deficit and fentanyl trafficking concerns raised by the White House.

“The market is evaluating how much this truce will actually impact demand,” said Tamas Varga, analyst at PVM Oil Associates. “Combined with a significant increase in OPEC+ supply in May and June, the upside for oil prices may be capped.”

Indeed, the Organization of the Petroleum Exporting Countries (OPEC) has raised output more than anticipated since April, with May production expected to rise by 411,000 barrels per day. The group and its allies are set to meet again on June 1, with expectations that additional supply could be approved.

Despite concerns over crude oversupply, refined fuel demand and margins have remained steady. Analysts at JPMorgan highlighted that while crude prices have fallen around 22% since peaking in mid-January, gasoline and diesel prices, along with refining margins, have shown resilience. They also pointed to reduced refining capacity in the US and Europe, which has made fuel markets more sensitive to disruptions.

Meanwhile, geopolitical developments in the Middle East also influenced oil sentiment. Traders are watching closely as President Donald Trump begins a trip to Saudi Arabia, where discussions on compliance within OPEC could shape future production decisions. Tensions between the US and Iran, including nuclear negotiations, are also being monitored for potential impacts on Iranian crude exports.

Though Monday’s rally marked the strongest settlement for oil prices since late April, the overall picture remains mixed. Crude markets continue to balance short-term optimism over eased trade friction with longer-term risks tied to rising supply and fragile global demand.

As of Tuesday, oil remains down more than 10% since early April, when tariff tensions escalated and sparked fears of a global economic slowdown.

With input from Reuters and Bloomberg.