Oil prices rose on Wednesday, hovering slightly above recent four-year lows, as investors turned their attention to U.S.-China trade talks and indications of lower U.S. production.
Brent crude futures increased by 44 cents a barrel, or 0.7 percent, reaching $62.59 a barrel by 04:00 GMT (currently trading at $62.73). Meanwhile, U.S. West Texas Intermediate crude was up 50 cents, or 0.9 percent, at $59.59 a barrel (currently trading at $59.74). Both benchmarks had recently plummeted to four-year lows following OPEC+’s decision to accelerate output increases, raising fears of oversupply amid heightened concerns about demand due to U.S. tariffs.
“News that the U.S. and China will start trade talks this weekend has Brent crude trading higher, extending a relief rally in oil,” reported Reuters, citing commodities strategists at ING on Wednesday. “Yet while negotiations would help improve sentiment in the oil market, we’ll need to see significant progress on lowering tariffs to improve the demand outlook,” ING added.
A bitter U.S.-China trade war, which escalated in April, has significantly weighed on oil prices, as traders worried that crude demand would deteriorate amid increasing global economic disruptions. Recent weak economic indicators from both the U.S. and China have further fueled this concern. However, China also provided some positive signals for oil, as travel demand surged sharply during the Labor Day holiday last week.
Lower oil prices prompt production cuts
Meanwhile, declining oil prices in recent weeks have led some U.S. energy firms, including Diamondback Energy and Coterra Energy, to announce rig reductions. Analysts believe these cuts should support prices over time by reducing output. The latest announcements indicate that production is expected to weaken in the coming months, according to ANZ Bank senior commodity strategist Daniel Hynes. “We warned last month that falling prices and declining drilling activity was raising the risk of U.S. oil output falling.”
Crude stocks fell by 4.5 million barrels in the week ending May 2, according to market sources citing American Petroleum Institute (API) figures released on Tuesday. U.S. government data on stockpiles is scheduled for release at 10:30 a.m. ET (14:30 GMT). Analysts polled by Reuters expect, on average, an 800,000 barrel decline in U.S. crude oil stocks for the previous week.
Demand signals and economic growth
Prices also received support from signs of improving demand. Consumers in China increased their spending during the May Day celebrations, and market participants returned after a five-day holiday. In Europe, companies are anticipated to report a growth of 0.4 percent in first-quarter earnings, a notable improvement from the 1.7 percent drop analysts had expected just a week ago. The Federal Reserve is widely expected to maintain U.S. interest rates unchanged on Wednesday as tariffs disrupt the economic outlook.
Oil was further buoyed by expectations of tighter U.S. supplies in the long term, following warnings from several major shale producers about cutting production due to pressure from low prices. Diamondback Energy, a key player in the Permian Basin, cautioned on Monday that U.S. oil production had likely peaked and was set to decline in the coming months, a sentiment echoed by peer Coterra Energy. Both producers indicated they would reduce the number of rigs in the upcoming months. These comments spurred speculation regarding tighter U.S. oil supplies, which could help offset the recently announced production increases by OPEC+.
