Oil prices experienced a 1% rebound on Monday, recovering from sharp losses incurred due to heightened U.S.-China tensions. This recovery followed a significant decline in the previous session, where oil prices reached their lowest point in five months. The market's optimism stems from the potential for talks between U.S. and Chinese presidents to alleviate trade tensions between the world's two largest economies and major oil consumers.
Brent crude futures rose by 87 cents, or 1.39%, reaching $63.60 per barrel by 0045 GMT. This upward trend followed a 3.82% decline on Friday, which saw prices drop to their lowest since May 7. Similarly, U.S. West Texas Intermediate crude futures increased by 87 cents, or 1.48%, to $59.77 per barrel, after a 4.24% loss that pushed prices to their lowest since May 7.
The U.S.-China trade tensions escalated last week when China tightened its rare earth export controls, prompting U.S. President Donald Trump to respond with a 100% tariff on China's U.S.-bound exports and new export controls on critical software by November 1. These actions come ahead of a potential Trump-Xi meeting at the Asia-Pacific Economic Cooperation forum in South Korea, which U.S. Trade Representative Jamison Greer suggests could still occur later this month.
Goldman Sachs analysts highlight the uncertainty surrounding the market's key question: whether these trade policies will be implemented, potentially disrupting global supply chains and high-tech production, or if they will serve as negotiation tactics ahead of the APEC meeting in South Korea. The analysts predict a likely scenario where both sides retreat from aggressive policies, and talks lead to an extended pause on tariff escalations, similar to the one agreed upon in May. However, they also acknowledge the risk of escalating trade tensions, which could result in higher tariffs or more severe export restrictions, at least temporarily.
Oil prices had previously tumbled in March and April during the peak of trade tensions between the two countries. Additionally, Trump's declaration on Sunday that the Gaza war has ended, as he travels to Israel, coincides with the expected release of Israeli hostages and Palestinian prisoners, part of a fragile ceasefire he facilitated.
