Oil Prices Climb as China Signals Openness to U.S. Trade Talks

Introduction

On May 2, 2025, global oil prices surged following a significant announcement from China, indicating its willingness to engage in trade talks with the United States to address escalating tariff disputes. This development, reported by Reuters, raised hopes of de-escalating the ongoing trade war between the world’s two largest economies, which has disrupted global markets and energy demand. The news triggered a rally in crude oil benchmarks, with Brent crude climbing to $68.73 per barrel and West Texas Intermediate (WTI) reaching $65.08 per barrel in early Asian trading. This article explores the reasons behind the oil price surge, the context of US-China trade tensions, the impact on global energy markets, and the broader implications for investors, policymakers, and consumers.

The US-China Trade War: A Persistent Drag on Oil Markets

The trade war between the United States and China, intensified under the second term of US President Donald Trump, has been a significant driver of global economic uncertainty. Since January 2025, the US has imposed tariffs as high as 145% on Chinese goods, targeting sectors like electronics, pharmaceuticals, and semiconductors. China retaliated with reciprocal tariffs and restrictions on critical mineral exports, escalating tensions and creating a de facto trade embargo between the two nations.

This tit-for-tat escalation has disrupted global supply chains, increased costs for manufacturers, and dampened economic growth projections. The energy sector, particularly oil, has been acutely affected due to China’s position as the world’s largest oil importer and the US as a major oil producer. Reduced industrial activity in China, coupled with supply chain bottlenecks, has weakened oil demand, contributing to a weekly decline in crude prices, with Brent at $66 and WTI down 3% over five days as of April 26, 2025

The trade war’s impact extends beyond energy. For instance, Harley-Davidson, a US-based manufacturer, highlighted the “big whammy” of 145% tariffs on Chinese imports, which affect its sourcing costs despite US-centric production. CEO Jochen Zeitz emphasised the need for a trade deal with China to mitigate these challenges. Similarly, European and Asian stocks faced volatility, with British factory exports declining sharply due to trade war strains.

China’s Signal of Openness: A Turning Point?

On May 1, 2025, a social media account affiliated with Chinese state media, Yuyuantantian, reported that the US had approached China to initiate talks over the 145% tariffs, signalling Beijing’s openness to negotiations. This was followed by a statement on May 2, 2025, from Chinese officials confirming their willingness to engage in dialogue, as reported by Reuters. The announcement came after weeks of conflicting statements, with Chinese officials previously denying active negotiations, labelling US claims as “fake news.”

The shift in China’s stance is significant. On April 24, 2025, China’s Ministry of Commerce spokesperson He Yadong had firmly stated that no trade negotiations were underway, insisting that talks must be based on mutual respect and equality. However, the latest remarks suggest a pragmatic approach, possibly driven by the economic costs of the trade war. For instance, China’s consideration of suspending its 125% tariffs on some US imports, as reported by Bloomberg, reflects the mounting pressure on its industries.

US officials, including Treasury Secretary Scott Bessent and White House economic adviser Kevin Hassett, have expressed optimism about easing trade tensions. Hassett noted “loose discussions” and cited China’s easing of duties on some US goods as a positive sign. President Trump, despite his hawkish rhetoric, suggested on May 1, 2025, that there was a “very good chance” of reaching a deal with China, according to The Global Times.

Why Oil Prices Responded

The oil price rally on May 2, 2025, was directly linked to the prospect of US-China trade talks. Several factors explain this market reaction:

1. Improved Demand Outlook: China’s openness to trade talks raised hopes of stabilising its economy, which has faced challenges from reduced industrial output and export declines due to US tariffs. As the world’s largest oil importer, consuming approximately 15 million barrels per day (bpd), a recovery in Chinese demand could significantly boost global oil consumption.
2. Reduced Supply Chain Disruptions: A potential de-escalation of tariffs could ease supply chain bottlenecks, benefiting industries like manufacturing and transportation, which are heavy oil consumers.
3. Market Sentiment: The announcement countered weeks of bearish sentiment in oil markets, driven by concerns over OPEC+ supply increases and weak demand. Brent crude rose 3.5% to $68.73 per barrel, and WTI gained 3.2% to $65.08 in early trading, erasing some of the previous week’s losses.
4. Geopolitical Context: Progress in US-Iran nuclear talks, which could lead to increased Iranian oil exports, had previously weighed on prices. However, the positive US-China news overshadowed these concerns, as investors focused on the potential for stronger demand.

Impact on Global Oil Markets

The oil price surge has implications for various stakeholders in the global energy ecosystem:

Producers

For oil-producing countries, the price increase is a welcome relief. OPEC+, which includes major producers like Saudi Arabia and Russia, has been grappling with the challenge of unwinding production cuts amid rising non-OPEC+ supply and slowing global demand growth. A report by Fitch’s BMI research unit warned that OPEC+ might face “price pain” if it increases output prematurely. The prospect of stronger Chinese demand could provide a buffer, allowing OPEC+ to maintain higher prices without flooding the market.

US producers, benefiting from increased exports to Asia, also stand to gain. India’s recent boost in US oil imports ahead of tariff talks with the US, as noted by, underscores the shifting trade dynamics.

Consumers

For consumers, rising oil prices translate to higher costs at the pump and increased prices for goods reliant on transportation. In the US, where gasoline prices averaged $3.50 per gallon in April 2025, a sustained oil price rally could push prices closer to $4, impacting household budgets. In Europe, where energy costs are already elevated due to geopolitical tensions, further price hikes could exacerbate inflation concerns.

Investors

Energy investors reacted swiftly to the news, with oil futures and energy stocks gaining ground. The Energy Select Sector SPDR Fund (XLE) rose 2.1% in pre-market trading on May 2, 2025, reflecting bullish sentiment. However, analysts caution that the rally’s sustainability depends on tangible progress in US-China talks, as past negotiations have faltered.

Broader Economic Implications

The potential for US-China trade talks extends beyond oil markets, with significant implications for the global economy:

1. Global Growth: A resolution to the trade war could boost global GDP growth, which the International Monetary Fund (IMF) projected at 3.2% for 2025, down from 3.3% in 2024 due to trade disruptions. Stronger Chinese demand and reduced US tariffs could stimulate manufacturing and consumption, benefiting economies like India and South Korea.
2. Inflation Dynamics: Easing trade tensions could lower input costs for manufacturers, mitigating inflationary pressures. However, rising oil prices may offset these gains, particularly in energy-intensive economies. The US Federal Reserve and European Central Bank (ECB) will closely monitor these developments as they navigate monetary policy.
3. Supply Chains: A trade deal could restore stability to global supply chains, reducing costs for companies like Apple and Tesla, which rely heavily on Chinese manufacturing. This could also benefit shipping companies, as evidenced by a 30% cancellation rate of US-bound shipments from China reported by Hapag-Lloyd.
4. Geopolitical Stability: While the trade war has heightened tensions, talks could reduce the risk of broader geopolitical conflicts. However, Vox warns that prolonged trade disputes, coupled with military posturing, could escalate risks, drawing parallels to historical events like Japan’s Pearl Harbour attack following US oil embargoes.

Analyst and Investor Sentiment

Analysts are cautiously optimistic about the oil price rally. Goldman Sachs raised its Brent forecast to $70–$75 per barrel for Q3 2025, citing potential demand recovery in Asia. However, Morgan Stanley warned that OPEC+ supply increases and non-OPEC+ production growth could cap gains unless trade talks yield concrete outcomes.

Posts on X reflect similar sentiment. @MYBusinessTimes noted that oil prices “pulled ahead” after China’s announcement, while @DavidNStocks1 highlighted the de-escalation hopes driving the rally. @PopescuCo shared Reuters’ coverage, emphasising the market’s positive response. However, some users, like @kediaadvisory, cautioned about supply concerns from US-Iran talks and potential sanctions on Russia, which could offset gains.

Challenges and Risks

Despite the optimism, several risks could derail the oil price rally and trade talks:

1. Negotiation Stalemate: Past US-China talks have been marked by mistrust and conflicting statements. China’s insistence on tariff cancellations as a precondition, as stated by Foreign Ministry spokesperson Guo Jiakun, could complicate progress.
2. OPEC+ Supply Dynamics: OPEC+ plans to raise production, as noted by, could flood the market, capping price gains. Non-OPEC+ supply growth from countries like Brazil and Canada adds further pressure.
3. Geopolitical Tensions: While US-China talks are promising, other geopolitical risks, such as US-Iran negotiations and potential sanctions on Russia, could disrupt supply. Senator Lindsey Graham’s push for tariffs on Russia’s trade partners could escalate tensions.
4. Economic Slowdown: A failure to resolve trade tensions could exacerbate global economic slowdown, particularly in China, where industrial activity has weakened. This would dampen oil demand, as seen in CNOOC’s profit decline due to lower oil prices.

Implications for India and Emerging Markets

For India, the world’s third-largest oil importer, rising oil prices pose both opportunities and challenges. Higher prices could widen India’s trade deficit, as crude oil accounts for 30% of its import bill, pushing retail fuel prices above ₹100 per litre in major cities. However, India’s recent increase in US oil imports, as reported by

positions it to benefit from improved US-China trade dynamics.

Emerging markets like Vietnam and Indonesia could also gain from stabilised supply chains and stronger global demand. However, these economies remain vulnerable to oil price volatility and inflationary pressures, necessitating careful policy responses from central banks like the Bank Indonesia.

Strategic Considerations for Stakeholders

Investors

Energy investors should monitor US-China trade talks closely, as a deal could sustain the oil price rally. Diversifying into energy ETFS like XLE or stocks of producers like ExxonMobil could offer upside. However, hedging against volatility with exposure to alternative energy, as pursued by Repsol, is prudent given OPEC+ supply risks.

Policymakers

Policymakers in oil-importing nations should prepare for higher energy costs by enhancing strategic petroleum reserves and promoting energy efficiency. The US Department of Energy could leverage domestic production to stabilise prices, while China’s National Energy Administration may prioritise demand-side measures to manage import costs.

Consumers

Consumers should brace for higher fuel and goods prices. In India, for instance, a 10% oil price increase could raise transportation costs by 5%, impacting household budgets. Adopting fuel-efficient practices and public transport can mitigate the impact.

Conclusion

The surge in oil prices on May 2, 2025, following China’s announcement of openness to trade talks with the US, reflects renewed optimism about global demand and economic stability. Brent crude’s rise to $68.73 and WTI’s climb to $65.08 underscore the market’s sensitivity to US-China trade dynamics, which have disrupted energy markets for months. The prospect of de-escalating the trade war, marked by 145% tariffs and retaliatory measures, offers hope for producers, investors, and consumers, but significant risks remain.

For oil markets, the rally hinges on tangible progress in negotiations, as past talks have faltered amid mistrust. OPEC+ supply increases, geopolitical tensions, and economic slowdowns could cap gains, necessitating cautious optimism. For India and other emerging markets, higher oil prices pose challenges but also opportunities to strengthen trade ties with the US. As stakeholders navigate this complex landscape, the outcome of US-China talks will shape the global energy and economic outlook for 2025 and beyond. Investors, policymakers, and consumers should stay vigilant, balancing opportunities with the inherent uncertainties of a volatile market.