Morning Highlights: Oil Rises on US-China Trade Optimism, Despite OPEC+ Supply Pressures

Market Snapshot (as of 06:30 EST):

🔺 Brent (July): $61.99 (+$0.87 | +1.2%)

🔺 WTI (June): $59.00 (+$0.93 | +1.4%)

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Headlines at a Glance:

• Oil posts modest gains on hopes of a US-China trade thaw.

• Brent recovers slightly after touching 2025 lows post-OPEC+ meeting.

• OPEC+ presses ahead with accelerated production increases.

• Analysts warn the path of least resistance remains lower.

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Key Market Drivers:

🔸 US-China Trade Talks Signal Possible Breakthrough

U.S. Treasury Secretary Scott Bessent is set to meet China’s top economic official on May 10 in Switzerland—an “ice-breaker” round to de-escalate trade tensions. Optimism around the meeting supported a 1% gain in crude, despite broader bearish fundamentals. The trade war has weighed heavily on global demand expectations, particularly for crude, with both nations being the world’s top two oil consumers.

📢 SEB's Ole Hvalbye: “The market has almost stabilized at slightly above $61 a barrel... optimism around the tariff situation was providing support.”

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OPEC+ Adds Barrels — and Pressure

The eight OPEC+ countries that had implemented voluntary production cuts in 2023 agreed at the May 4 meeting to increase June output by another 411,000 bpd, marking a continued acceleration of their unwind schedule. This follows an identical increase in May and brings the cumulative rollback of the 2.2 million bpd cuts to 1.4 million bpd.

📉 Brent briefly touched $58.50 this week—just 10 cents above its 2025 low.

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Compliance Woes: Spotlight on Kazakhstan

Kazakhstan remains a chronic overproducer. In March, output reached 1.852 mb/d, overshooting its quota by 384 kb/d, with 38 kb/d of missed compensation cuts bringing total overproduction to 422 kb/d. April figures are expected to be similarly high.

Chevron’s CEO Mike Wirth confirmed no talks with Kazakh officials about production restraints. OPEC+ delegates say Saudi Arabia is considering releasing the remainder of the withheld 2.2 mb/d in large tranches if non-compliance continues—potentially flooding the market further.

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Forecasts Cut Across the Board

• Citi slashed its 3-month Brent target to $55/bbl (from $60), maintaining a full-year average of $60.

• A successful U.S.-Iran nuclear deal could push Brent down toward $50.

• StanChart warns the “path of least resistance” is lower, though they foresee gradual recovery later in the year on falling U.S. shale output.

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📈 Macro Overlay: Fed on Hold, Dollar Pressures Commodities

The Federal Reserve left interest rates unchanged but acknowledged that tariff-linked inflation and unemployment risks are rising. A stronger USD added modest headwinds to commodity markets Thursday.

📢 ING Analysts: “The Fed signaled that rates will likely remain on hold until the effects of tariffs become clearer.”

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Prices found a foothold today thanks to improving trade diplomacy, but the undercurrent remains fragile. Accelerated OPEC+ supply, quota breaches, and lingering demand doubts suggest any price recovery could be short-lived—unless a clear resolution emerges from next week’s U.S.-China talks.