Crude oil prices surge to $61.41 on trade deal hint, demand concerns

Vijay Valecha, Economy Middle East, May 8, 2025

Oil prices saw a surge on Thursday following U.S. President Donald Trump’s announcement of an impending trade agreement with a major economic power. This news ignited hopes for a reduction in his tariff policies.

However, concerns about weakening demand and increased OPEC+ production continued to exert downward pressure on crude prices. Wednesday had seen sharp declines, with prices hovering near four-year lows after mixed U.S. inventory data revealed a cooling in fuel demand.

Brent oil futures for July saw a rise of 0.5 percent to $61.41 a barrel (currently trading at $61.61), while West Texas Intermediate crude futures increased by 0.6 percent to $58.02 a barrel by 21:57 ET (01:57 GMT). WTI crude futures is currently trading at $58.62. Investors are closely monitoring these movements for insights into the oil price forecast.

“Major” trade deal and tariff uncertainty

Thursday’s oil gains were largely driven by President Trump’s statement regarding a “major” trade deal with a significant country. Media reports yesterday indicated that the country in question was Britain.

Any trade agreement finalized this week would mark the first since Trump introduced broad “reciprocal” tariffs against numerous major U.S. trading partners, although a 90-day exemption was subsequently announced for all countries except China.

Uncertainty surrounding Trump’s tariffs has been a major drag on oil prices in recent weeks, as markets worried about their potential consequences. The oil price forecast has also been affected by recent economic data indicating weakness in both the U.S. and China, following their involvement in a trade dispute that began in April.

Powell’s tariff uncertainty

“The word ‘uncertainty’ was bandied about several times by Powell, especially pertaining to the scope and magnitude of tariffs. Although negotiations are underway, the complexities in reaching trade deals are many. While the Fed hopes any tariff-driven spike in prices will be transitory, persistent price pressures of a considerable magnitude could cause inflation to become entrenched, particularly if trade deals fail to materialise or if tariffs are increased. As such, the central bank sees increased risk of higher unemployment and higher inflation down the line. This has elevated the possibility of stagflation, making the Fed’s path forward even more uncertain,” remarked Vijay Valecha, chief investment officer, Century Financial, to Economy Middle East.

“As a result, the Fed is well positioned to wait and monitor forthcoming economic data points before deciding its next move. Powell stated the Fed is comfortable with its current stance and can afford to be patient, while also being prepared to act quickly if the economy weakens,” further noted Valecha.

While the Trump administration has indicated its willingness to engage in trade discussions with China this week, Trump stated that he is unwilling to reduce his 145 percent tariffs on Beijing.

China has also suggested that the talks taking place this week were primarily at the request of the U.S.

Losses and concerns about demand and supply

Despite Thursday’s gains, oil prices have suffered significant losses so far in 2025. These losses have intensified in recent weeks due to growing concerns about slowing demand and rising production.

Increased economic uncertainty has fueled concerns about demand. The Federal Reserve contributed to this uncertainty on Wednesday by maintaining interest rates and highlighting increased economic risks stemming from trade disruptions and a potential increase in inflation.

Expectations of higher supplies have also put pressure on oil prices. The Organization of Petroleum Exporting Countries and its allies announced plans to increase production by a considerably larger margin in June.

However, this was partially offset by several major U.S. producers signaling a slowdown in domestic production, as a recent decline in oil prices prompted a reduction in capital spending.