Oil after US-China trade deal: Where are prices headed next?

Oil prices rise on US-China deal, but long-term risks still point to a downward trend

Last updated:
Justin Varghese (Your Money Editor)
3 MIN READ
Goldman Sachs has cut its oil price forecasts for the rest of 2025 and 2026. The bank now expects Brent crude to average $60 this year and $56 next year, with WTI following a similar path.
Goldman Sachs has cut its oil price forecasts for the rest of 2025 and 2026. The bank now expects Brent crude to average $60 this year and $56 next year, with WTI following a similar path.
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Dubai: The surprise truce in the US-China trade standoff has given oil prices a temporary boost—but will that momentum last?

Oil futures climbed to a three-week high after both nations agreed to reduce most of the tariffs they had imposed during their economic tug-of-war. The deal, which includes a substantial cut of up to 115% in reciprocal tariffs, is being hailed as a major turning point for global trade flows.

But even as traders cheered, the rally in oil may be short-lived. The broader picture still points to growing supply, tepid demand, and persistent global economic uncertainty—factors that could all weigh on crude prices in the coming months.

Why prices rose initially

Markets reacted swiftly and positively to the news of progress between Washington and Beijing. Brent crude futures jumped to over $65 per barrel, while WTI followed suit, topping $62.

Investor optimism was driven by hopes that a smoother trade environment would revive industrial activity and fuel demand across both economies. Yet analysts were quick to note that while the trade breakthrough helps sentiment, it doesn’t resolve deeper issues in the oil market.

Real problem: More oil, less demand

Goldman Sachs has cut its oil price forecasts for the rest of 2025 and 2026. The bank now expects Brent crude to average $60 this year and $56 next year, with WTI following a similar path. Why the downgrade? It boils down to too much oil and not enough demand.

According to Goldman, global oil supply is set to outpace consumption by about 800,000 barrels per day (bpd) in 2025, and the surplus could grow to 1.5 million bpd in 2026. What’s notable is that most of this extra oil isn’t coming from OPEC or the US shale fields, but from countries like Brazil, Guyana, Kazakhstan, and the US Gulf Coast—regions that are ramping up production quickly.

This influx of non-OPEC supply, Goldman warns, could keep a lid on prices and eventually pressure US shale output, especially if prices dip closer to the breakeven point of $51 per barrel. If that happens, the bank estimates US Lower 48 production could drop by half a million barrels per day by late 2026.

OPEC+ still in play, faces own challenges

Meanwhile, OPEC+ is treading cautiously. A modest supply increase of about 410,000 bpd is expected in July, but beyond that, no further hikes are likely. That’s because oil demand, while still growing, is not exactly robust. Goldman sees consumption rising by just 300,000 bpd annually through 2026, and it believes China’s oil demand may have already peaked.

Add to that ongoing compliance issues among some OPEC+ members, such as Kazakhstan and Iraq, and the group’s ability to control output effectively becomes a question mark.

Trade deal or not, oil faces structural headwinds

While the US-China trade deal reduces near-term uncertainty, oil prices remain vulnerable to broader economic strains. China's economy, for example, continues to face challenges—sluggish factory activity, deflationary pressures, and a stagnant property market all signal weaker industrial demand.

And if the global economy slows further, oil demand could drop even more sharply—a scenario Goldman Sachs says could drive Brent prices below $50 per barrel if OPEC+ abandons its current production limits.

Final verdict: Will oil prices rise or fall?

In the short term, optimism around improved US-China ties may support prices. But looking further ahead, it’s hard to ignore the mounting headwinds:

· Rising supply from emerging producers

· Limited demand growth, especially from China

· Possible economic slowdown globally

· Questionable discipline within OPEC+

Bottom line: The trade deal might lift oil prices temporarily, but the structural forces at play are still pointing toward lower prices in the medium term. For investors and businesses, this means it’s wise to expect continued volatility—and not to bet too heavily on a sustained rally.

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