Crude oil prices recover 13% from May lows to reach 2-week high. What’s fueling the rebound?

Crude oil prices, which had come under pressure earlier this month due to fears of a global economic slowdown amid rising trade tensions, geopolitical tensions, and supply concerns, have since stabilized, fueling a rebound in both Brent and WTI futures.

Brent crude futures have recovered nearly 12% from the May 5 low of $59.57, trading at a 2-week high of $66.49. Likewise, WTI crude futures have reached a 2-week high of $63.50 per barrel, rebounding nearly 13% from the May 5 low of $56.46.

Trade optimism fuels oil price recovery

The majority of the rebound in crude oil prices has been driven by optimism over easing global trade tensions, which has boosted expectations that demand for crude oil may not be as severely impacted as feared earlier this month. The U.S. is currently engaged in active discussions with several major trading partners to finalize trade deals, the latest being announced with China and the United Kingdom.

The U.S. and the U.K. struck a trade deal last week, and optimism improved further when the U.S. and China announced on Monday a 90-day pause in their trade war. This pause involves rolling back reciprocal tariffs and removing other measures while they negotiate a more permanent arrangement.

Rally gets a boost from softer US dollar

Apart from easing global trade worries, the prices are also drawing support from a softening U.S. Dollar Index, which measures the greenback against a basket of currencies. The index skidded 1% in the previous trading session after the U.S. inflation print for April came in softer than expected.

The dollar is currently hovering around the 100 mark, making dollar-denominated commodities more attractive. Data released Tuesday showed headline inflation eased to 2.3% in April, its lowest level since February 2021, and slightly below market forecasts of 2.4%.

With U.S. inflation data now behind the markets, the next major signal for the U.S. economy is April retail sales data, due Thursday. On the same day, talks are scheduled between Ukraine and Russia in Istanbul, raising hopes for a ceasefire three years into Europe’s deadliest conflict since World War Two.

Sanctions shadow over Iran helps crude defy supply concerns

On Tuesday, the U.S. imposed fresh sanctions on about 20 companies it accused of helping Iran's Armed Forces General Staff and its front company, Sepehr Energy, ship Iranian oil to China. The move follows the fourth round of U.S.-Iran talks in Oman aimed at resolving disputes over Iran's nuclear program.

API data showed that crude inventories surged by 4.29 million barrels last week—the largest increase in six weeks—defying forecasts of a 2.4-million-barrel drop. However, gasoline inventories fell by 1.4 million barrels, while distillate stocks declined by 3.7 million barrels.

Meanwhile, earlier this month, Organization of the Petroleum Exporting Countries (OPEC) has raised oil output by more than previously expected since April, with May output likely to increase by 411,000 barrels per day.

Meanwhile the market is also closely watching U.S. President Donald Trump's Gulf visit, which began Tuesday with an appearance at an investment forum in Riyadh. There, he announced the lifting of longstanding U.S. sanctions on Syria and secured a $600 billion pledge in Saudi investment.

(With inputs from Reuters)

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