By Rania Gule, Senior Market Analyst at XS.com – MENA
U.S. crude oil prices (WTI) witnessed a notable rebound during early Asian trading on Wednesday, rising to around $58.72 per barrel. This upward move comes as trade tensions between the United States and China ease, coupled with a new decline in U.S. crude inventories — restoring a cautious sense of optimism to global energy markets. Yet, while this rebound may appear promising on the surface, it remains surrounded by structural challenges that could limit its sustainability in the medium term.
Historically, the trade relationship between the U.S. and China has had a direct impact on oil price dynamics, as the two economies together account for more than one-third of global energy consumption. Consequently, any sign of easing or escalation in their trade dispute immediately reverberates through markets. Last week, former U.S. President Donald Trump’s threat to impose new 100% tariffs on Chinese goods triggered anxiety among investors — only for those fears to subside after he stated that such tariffs were “unsustainable” and expressed readiness to improve relations with Beijing. This shift in political tone helped calm the markets and encouraged traders to rebuild long positions in crude, anticipating a potential trade understanding that could mitigate the risk of global slowdown.
On another front, the latest report from the U.S. Energy Information Administration (EIA) provided an additional boost to prices, showing a decline of 2.98 million barrels in crude inventories for the week ending October 17, compared with a 3.5 million barrel increase the week before. Although modest, this drawdown reflects a gradual improvement in the supply-demand balance within the U.S. market, especially amid higher refinery runs and seasonal travel demand. Still, the broader picture remains mixed, as data from the American Petroleum Institute (API) indicate that total inventories have only fallen by 2.4 million barrels since the start of the year — suggesting that the oversupply issue has not yet been fully absorbed.
Interestingly, the current optimism in the oil market is not solely driven by trade de-escalation or inventory drawdowns; it also reflects growing expectations that the Federal Reserve will pursue further monetary easing. The likelihood of a 25-basis-point rate cut at the next policy meeting has been welcomed by investors who understand that a more accommodative policy stance tends to weaken the U.S. dollar. A softer dollar generally makes dollar-denominated commodities — most notably oil — more attractive to foreign buyers, indirectly supporting prices.
However, one cannot overlook the structural headwinds limiting the market’s ability to sustain an extended rally. The International Energy Agency (IEA) projects a potential global supply surplus of nearly 4 million barrels per day by 2026, driven by OPEC and its allies continuing to increase production gradually. Meanwhile, rising Chinese output raises questions about the market’s ability to absorb additional supply, particularly amid slowing global industrial demand. China’s refineries processed 62.7 million tons of crude in September — the highest in two years — and reports suggest that the country imported about 570,000 barrels per day more than it needed, reinforcing fears of stockpiling and structural oversupply.
From my perspective, the recent move above $57.50 appears to be more of a psychological rebound than a fundamental shift in market direction. Traders are pricing in temporary calm between Washington and Beijing while betting on imminent rate cuts — yet they remain aware that any setback in trade negotiations or renewed tariff escalation could quickly erase these gains. Similarly, any disappointing inventory data or signs of weakening Asian demand could reignite selling pressure, particularly as the winter season approaches, when consumption patterns typically fluctuate sharply.
In my view, oil is currently trading within a fragile equilibrium range, where short-term supportive factors — such as trade détente and monetary easing — are counterbalanced by oversupply and slowing economic momentum. WTI will likely remain confined between $55 and $59 in the coming weeks unless major political or economic surprises emerge. Breaking above the $60 threshold would require a stronger catalyst — perhaps in the form of a comprehensive trade agreement or renewed production cuts from OPEC+. Absent such developments, the broader trend remains sideways to slightly bearish, especially as global demand signals continue to weaken.
Ultimately, the latest price recovery underscores the resilience of the oil market and its capacity to react positively to shifts in geopolitical and macroeconomic sentiment. Yet, it does not necessarily signal the beginning of a new bullish cycle. The underlying fundamentals remain insufficient to sustain a long-term uptrend. The geopolitical dimension — particularly the evolving U.S.-China relationship — will likely remain the key determinant in the months ahead. A genuine breakthrough in trade talks could restore market balance and investor confidence, while renewed tensions would swiftly erode these fragile gains.
In essence, the current oil landscape resembles a calm before the directional test — a temporary truce between market optimism and real-economy anxiety. While traders celebrate the return of prices near $58, my more cautious view is that this represents a tactical, short-term rebound rather than a structural recovery. The near future will determine the next trend, but one thing remains certain: oil will continue to mirror the world’s mood — rising with confidence, and falling whenever politics casts its long shadow over the markets.