Trade Optimism, Shrinking Inventories Fuel Oil Prices Rally

WTI crude oil prices have climbed above $65.00, marking a significant 2% intraday gain as of June 11, 2025. This surge stems from renewed optimism in US-China trade negotiations and a sharper-than-expected decline in US oil inventories. These factors signal stronger demand and tighter supply, driving market momentum. What does this rally mean for global energy markets, and can it sustain its upward trajectory?

US-China Trade Progress Sparks Optimism

Positive developments in US-China trade talks have bolstered risk sentiment, lifting commodity prices. On June 10, 2025, President Donald Trump announced via Truth Social that a trade deal with China is nearing completion, pending final approval with President Xi Jinping. This news has fueled expectations of increased global trade and industrial activity, which directly supports oil demand. Historically, trade resolutions have spurred economic growth, boosting energy consumption.

For instance, the 2019 Phase One deal saw oil prices rise briefly before stabilizing. Today’s context differs, as global economies grapple with post-pandemic recovery and geopolitical tensions, making this optimism a critical driver for oil markets.

Inventory Drawdowns Signal Tightening Supply

The US Energy Information Administration (EIA) reported a significant 3.644 million barrel drop in crude oil inventories for the week ending June 7, 2025, far exceeding forecasts of a modest 0.1 million barrel increase. This follows a prior 4.304 million barrel decline, underscoring a trend of shrinking stockpiles. Lower inventories suggest robust demand or constrained supply, both bullish for oil prices. Compared to last year, when inventories fell by 2.5 million barrels in a similar period, the current drawdown is notably larger, amplifying market confidence. However, risks remain, as unexpected supply increases or demand slowdowns could temper this momentum.

Can the Rally Hold?

While trade optimism and inventory declines have propelled WTI to its highest level since April 2025, sustaining this rally faces challenges. Global demand hinges on economic recovery, particularly in China, where industrial output remains uneven. Additionally, OPEC+ production decisions could influence supply dynamics. For the rally to persist, trade negotiations must deliver concrete outcomes, and inventory trends should continue signaling tightness.

Policymakers like Federal Reserve Chair Jerome Powell, who influence economic conditions through monetary policy, will play a role in shaping demand. For now, the market’s bullish sentiment reflects a delicate balance of hope and fundamentals, with $65.50 acting as a key level to watch.

The interplay of trade progress and supply constraints has ignited WTI’s upward move, offering a glimpse of resilience in energy markets. Yet, the path forward demands considerable caution, as global economic signals and policy decisions will shape whether this rally can endure.