Mutual Reduction of Tariffs Between China and the US Drives Up Oil Prices: Rebound Begins or Volatility Continues?

The Chinese and US governments issued a joint statement on Monday, agreeing to temporarily modify and eliminate additional tariffs imposed on each other's goods. Within 90 days, the reciprocal tariff rates between the two countries will be reduced to 10%. This statement significantly boosted confidence in global capital markets, with Asian and European stock markets, as well as US stock index futures, all rising on Monday.

Meanwhile, as tariff disputes ease, market expectations are that the global economy is likely to continue growing amid the resumption of normal trade between China and the US. This has also driven stronger oil demand, thereby benefiting oil prices. As of press time, Brent crude oil futures prices rose by 2.74%, and WTI crude oil futures prices rose by 2.72%.

However, the sustainability of the rebound in crude oil prices remains to be verified. Gao Jian, a crude oil researcher at Qisheng Futures, previously told the media that it is uncertain whether the tariff issue can be fundamentally resolved and whether tensions can be eased. Unless there are more tangible and favorable developments in macro, fundamental, or geopolitical aspects, the scope for further rebounds in oil prices will be limited.

Toshitaka Tazawa, an analyst at Fujitomi Securities, had also previously warned that optimism over constructive talks between China and the US has supported market sentiment, but OPEC's production increase plans may limit gains.

Game Theory

OPEC plans to accelerate production increases from May to June to supply more crude oil to the global market. Meanwhile, the US and Iran will continue negotiations on the nuclear program, which will also reinforce market perceptions that global oil supplies will remain stable.

On the other hand, US President Trump also seeks to continue lowering oil prices to fulfill his campaign promise of reducing energy costs. These macro factors collectively exert pressure on oil prices, leading analysts to believe that oil prices will remain low until 2026.

Goldman Sachs earlier projected that for the remainder of 2025, the average price of Brent crude oil will remain at $60 per barrel, with WTI crude oil averaging $56 per barrel. In 2026, Brent crude oil will further decline to $56 per barrel, and WTI will fall to $52 per barrel.

Starting from Monday this week, Trump will also make his first visit to the Middle East, conducting state visits to Saudi Arabia, the UAE, and Qatar. Some commentators have pointed out that low oil prices are, to some extent, a gesture of goodwill from the Middle East towards Trump. For example, Saudi Arabia hopes to attract more US investment to support its Vision 2030 plan.

Trump also hopes to receive more capital inflows from Gulf countries. However, Karen Young, a senior fellow at the Center on Global Energy Policy at Columbia University, stated that Gulf countries have higher import values than export values. If they cannot increase export revenues, they will have to sell domestic assets to cover fiscal and current account deficits.

This means that low oil prices are not a sustainable policy for the Gulf countries. Tim Callen, a visiting scholar at the Arab Gulf States Institute in Washington, added that if oil prices continue to fall, it is less likely that the Gulf countries will fulfill their investment commitments to the United States.

This, in turn, forces Trump to consider the possibility of rising oil prices. Given that attracting large-scale investment funds from the Middle East to the United States could be seen as a victory for the White House's economic agenda, Trump's trip to the Middle East will be crucial for the future direction of global oil prices.