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Oil prices advanced in Asian trading on Wednesday, extending gains for a second consecutive session as the U.S. confirmed the start of formal trade negotiations with China this week. Expectations of tighter domestic crude supplies also supported prices, following warnings from major U.S. shale producers about planned production cuts.
As of 01:13 GMT, Brent crude futures for June delivery rose 0.7% to $62.58 per barrel, while West Texas Intermediate (WTI) futures climbed 0.8% to $59.14 per barrel. The gains followed a technical rebound on Tuesday, after both benchmarks plunged to four-year lows earlier in the week.
U.S.-China Trade Talks in Focus
Investor sentiment received a lift after the U.S. Treasury Department confirmed that Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer will meet with their Chinese counterparts in Switzerland later this week. The meeting represents the first definitive step toward re-engaging on trade discussions after weeks of uncertainty and conflicting statements from both governments.
While the White House has downplayed urgency in finalizing any deal, with President Donald Trump reiterating his willingness to wait, the announcement of scheduled talks offered markets hope for a potential de-escalation in trade tensions. The U.S.-China trade conflict, reignited in April with tit-for-tat tariff hikes, has weighed heavily on oil prices by raising concerns over deteriorating global demand.
Mixed Demand Outlook
Despite the renewed diplomatic efforts, the broader outlook for oil demand remains clouded by weakening economic indicators in both the U.S. and China. Recent data revealed a contraction in U.S. GDP during the first quarter, while China’s manufacturing activity posted its first decline in four months.
However, signs of a pickup in Chinese travel activity during the recent Labor Day holiday provided a modest counterbalance, hinting at stronger near-term domestic demand for fuel.
Tighter U.S. Supply Expectations
A separate tailwind for oil prices came from expectations of a tighter U.S. supply outlook. Diamondback Energy (NASDAQ:FANG) and Coterra Energy (NYSE:CTRA) both said this week that they expect U.S. production to decline in the coming months due to weak prices, with both companies planning to reduce the number of active rigs.
Diamondback warned that U.S. oil production may have already peaked in the current cycle. The prospect of lower output from key Permian Basin producers has led traders to bet that tighter U.S. supply could help offset the impact of production increases recently announced by the OPEC+ alliance.
Inventory Data in Focus
Markets also took cues from industry data showing a larger-than-expected draw in U.S. crude inventories. Official figures from the U.S. Energy Information Administration are due later Wednesday and could offer more clarity on near-term supply conditions.
Oil traders now await additional developments from the ongoing U.S.-China trade dialogue and the Federal Reserve’s policy decision due later in the day, which may further shape risk appetite and demand expectations in energy markets.
