Oil prices surged over $2 per barrel in Asian trading on Monday, buoyed by a significant easing of trade tensions between the United States and China. Brent crude futures climbed $2.11, or 3.3%, to $64.14 a barrel, while US West Texas Intermediate crude futures rose $2.12, or 3.47%, to $63.14.
The rally followed a joint announcement from Washington and Beijing declaring a 90-day suspension of additional tariffs, marking a notable de-escalation in their protracted trade dispute. The United States agreed to reduce tariffs on Chinese goods from 145% to 30%, while China lowered its tariffs on US imports from 125% to 10%. This 115-percentage-point reduction was unveiled after intensive negotiations in Geneva over the weekend.
Market participants interpreted the truce as a positive signal for global economic growth, particularly for energy demand. China, the world’s largest crude importer, has been a focal point for oil traders concerned about the impact of trade frictions on consumption. The easing of tariffs is expected to stimulate industrial activity and bolster demand for commodities, including oil.
US Treasury Secretary Scott Bessent highlighted the strategic importance of the agreement, emphasizing mutual interests in avoiding economic decoupling. He noted that the tariff reductions would provide a window for further negotiations aimed at achieving a more permanent resolution. However, Bessent cautioned that the current measures are temporary and that tariffs could increase again if no long-term deal is reached within the 90-day period.
Financial markets responded positively to the developments. Major indices such as the Dow and Nasdaq experienced significant gains, reflecting investor optimism. The US dollar strengthened, while safe-haven assets like gold and government bonds saw declines, indicating a shift towards risk-on sentiment.
The oil market’s reaction was further amplified by supportive economic data from China. The Caixin manufacturing Purchasing Managers’ Index rose to 50.8 in February, surpassing expectations and marking the highest reading in three months. This uptick suggests an expansion in manufacturing activity, which could translate into increased energy consumption.
Despite the immediate boost to market sentiment, analysts remain cautious about the long-term implications. The temporary nature of the tariff suspension means that underlying uncertainties persist. Moreover, the tariffs, even after reductions, remain significantly higher than pre-conflict levels, potentially continuing to exert pressure on global trade dynamics.
In addition to trade developments, geopolitical factors are also influencing oil prices. Tensions in the Middle East, particularly between Israel and Hamas, have raised concerns about potential disruptions to oil supply. Recent Israeli airstrikes and the fragile nature of ceasefire agreements contribute to a risk premium in oil markets.
The ongoing conflict between Russia and Ukraine continues to affect global oil supply chains. Sanctions on Russian oil exports and uncertainties surrounding peace negotiations add to the complex landscape influencing oil prices.
