Oil prices rise further on trade war relief

Oil prices extended their gains on Tuesday as easing concerns over global trade tensions lifted investor sentiment and revived demand outlook. Benchmark crude futures surged on optimism following positive developments in U.S.-China trade negotiations, sparking hopes of a rebound in industrial activity and energy consumption.

Global Oil Prices Rebound Amid Trade Truce Signals

Brent crude futures climbed by 1.7% to $87.30 per barrel, while U.S. West Texas Intermediate (WTI) rose by 1.9% to $83.45 per barrel, marking the second consecutive session of gains. The rally followed statements from U.S. and Chinese officials suggesting a willingness to de-escalate trade disputes, signaling a potential end to the tariff stand-off that had rattled markets for months.

“We’re seeing the market breathe a sigh of relief,” said Rystad Energy analyst Louise Dickson. “A resolution or even a pause in the trade war supports global economic stability, which in turn boosts oil demand projections.”

Energy Demand Outlook Brightens

The oil market has been under pressure in recent months as fears of a prolonged U.S.-China trade war dampened demand expectations. However, Monday’s diplomatic overtures — including resumed high-level talks and a temporary freeze on new tariffs — appear to have re-energized the commodity complex.

“Trade relations are directly tied to the health of global supply chains,” noted Peter McNally, global sector lead for industrials, materials, and energy at Third Bridge. “If global manufacturing and shipping pick up, we will certainly see oil demand bounce back in H2 2025.”

The International Energy Agency (IEA) had earlier trimmed its global demand growth forecast to 1.1 million barrels per day (bpd) in 2025, citing geopolitical and economic concerns. But with signs of trade normalization, analysts expect that figure to be revised upward in the agency’s August outlook.

Supply Factors Add to Bullish Momentum

Besides demand optimism, supply-side constraints also lent support to oil prices. Ongoing disruptions in Libya and reduced output from Nigeria have tightened the market further. Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) and its allies have reiterated their commitment to production targets aimed at stabilizing prices.

“The OPEC+ group has little incentive to increase output in a volatile market. With inventory levels already trending lower, any demand resurgence will likely fuel further price upside,” said Helima Croft, global head of commodity strategy at RBC Capital Markets.

In addition, the U.S. rig count, a key indicator of future output, fell for the fourth week in a row, pointing to tighter supply from North America.

Geopolitical Risk Premium Returns

The improving trade backdrop comes amid renewed tensions in the Middle East, particularly the Strait of Hormuz, a crucial chokepoint for oil shipments. While no major disruptions have occurred, markets have begun pricing in a modest geopolitical risk premium.

“There’s a fragile equilibrium right now,” said John Kilduff, founding partner at Again Capital. “Any escalation could cause a sudden spike in oil prices, especially if it affects transport routes or infrastructure.”

Stock Market Reactions and Energy Equities

Energy stocks rallied in tandem with crude futures. The S&P 500 Energy Index rose by 2.4%, led by gains in ExxonMobil, Chevron, and ConocoPhillips. Investors bet on higher margins and improved earnings in the upcoming quarterly results as oil prices firm up.

Indian energy companies such as ONGC, Reliance Industries, and Oil India Ltd also saw renewed buying interest on the Bombay Stock Exchange, with shares climbing between 1.5% and 3%.

Investor Outlook: What Lies Ahead?

While oil’s rally has restored some confidence, market participants remain cautiously optimistic.

“Much of the current pricing is sentiment-driven,” warned Vivek Dhar, commodities strategist at Commonwealth Bank of Australia. “Sustained gains will require real progress on trade and a confirmed uptick in global demand.”

Analysts recommend watching key macroeconomic data from the U.S., China, and the Eurozone, as well as the upcoming OPEC+ meeting in early August, which may adjust output strategy in light of demand recovery.

The recent uptick in oil prices reflects a market recalibrating from pessimism to guarded hope. With trade tensions easing and global demand prospects improving, oil may be poised for a more sustained rebound. However, uncertainties remain, and investors would be wise to maintain a diversified approach amid evolving geopolitical and economic landscapes.