Crude oil prices climbed sharply on Monday after the United States and China agreed to a 90-day tariff reduction, temporarily easing trade tensions between the world's two largest oil consumers. The market responded with optimism to the weekend agreement reached during talks in Geneva.
West Texas Intermediate (WTI) crude rose $2.52, or 4.1%, to $63.54 a barrel, while global benchmark Brent gained $2.33, or 3.65%, to settle at $66.24. Both benchmarks added to last week's gains, which followed a separate trade agreement between the U.S. and the U.K.
The latest deal includes a 115% reduction in tariffs, cutting U.S. duties on Chinese imports to 30% and Chinese tariffs on U.S. goods to 10%. "I would imagine in the next few weeks we will be meeting again to get rolling on a more fulsome agreement," Treasury Secretary Scott Bessent said on CNBC's "Squawk Box."
"The previous rates had effectively amounted to a trade embargo," Bessent added.
Energy analysts pointed to renewed optimism for global growth and oil demand as trade flows show signs of recovery. "This is a start at least and is better news coming out of talks at the weekend than a failure to agree anything, so it is no surprise that oil markets are higher," said Callum Macpherson, head of commodities at Investec.
Ole Hansen, head of commodity strategy at Saxo Bank, said the de-escalation "offers an improved demand outlook to oil prices."
Oil prices had dropped to four-year lows earlier in April amid fears that trade disputes would push the global economy into recession. Simultaneously, a surge in production from OPEC+ members and falling demand projections had increased downside pressure.
The price slump has threatened the economics of U.S. shale operations. Diamondback Energy executives told investors last week that crude prices need to return to the high $60s to justify new drilling. "This oil price doesn't work," said President Matthew Kaes Van't Hof. He added that Diamondback's production will only grow if U.S. crude reaches a sustainable path toward $70.
