Oil Prices Surge as US-China Trade Talks Fuel Market Optimism | May 2025 Analysis

By: Aditi

Published on: May 07, 2025

Oil Prices Rise Amid Hopes of US-China Trade Progress

Global commodity markets saw significant movement on Wednesday, May 7, 2025, as oil prices climbed amid cautious optimism around upcoming US-China trade negotiations. Investors closely monitored developments in currency markets, gold, and energy sectors, with central bank policies and geopolitical tensions driving volatility. Here’s a breakdown of the key trends shaping the financial landscape.

Oil Prices Gain Momentum Ahead of Critical Trade Talks

Oil prices rose sharply during early trading on Wednesday, fueled by hopes that the US and China could de-escalate trade tensions during high-stakes talks scheduled for the weekend.

• Brent crude futures (BZ=F) increased by 1.5%, reaching $63.07 per barrel.


• West Texas Intermediate (CL=F), the US benchmark, climbed 1.7% to $60.12 per barrel.

The talks, set to take place in Switzerland on May 10–11, will mark the first major dialogue between the two economic superpowers since the Trump administration reintroduced sweeping tariffs earlier in 2025. US Treasury Secretary Scott Bessent and Chief Trade Negotiator Jamieson Greer will lead the American delegation, while China’s Vice Premier He Lifeng will represent Beijing.

In a Fox News interview, Bessent emphasized that the discussions would focus on “de-escalation rather than a grand trade deal,” adding, “We don’t want to decouple; what we want is fair trade.” China’s Ministry of Commerce, meanwhile, urged the US to “show sincerity” in resolving disputes.

Production Cuts Add to Price Support
Beyond trade optimism, weakening US oil production provided additional upward momentum. Diamondback Energy reported a 10% quarterly decline in active US rigs, tightening supply expectations. Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown, noted, “The drop in US output is helping Brent crude reclaim lost ground, even as demand concerns linger.”

Pound Struggles Ahead of Fed and BoE Rate Decisions

The British pound faced headwinds as investors awaited key central bank announcements.

• GBP/USD (GBPUSD=X) fell 0.2% to $1.3351.


• GBP/EUR (GBPEUR=X) dipped 0.1% to €1.1743.

Federal Reserve in Focus
The US dollar index (DXY) edged up 0.2% to 99.46, reflecting market caution ahead of the Federal Reserve’s interest rate decision. While the Fed is expected to hold rates steady, President Donald Trump’s calls for cuts and mixed economic data have clouded the outlook. Streeter explained, “Policymakers need clarity on how tariffs will impact employment and inflation before easing policy.”

Bank of England Poised for Rate Cut
Attention then shifts to the Bank of England (BoE), which is widely anticipated to lower rates by 25 basis points to 4.25% on May 8. The UK economy has been battered by spillover effects from US trade policies, with recent data showing a contraction in the services sector—the first in 18 months.

“The odds of a BoE cut have jumped to 90%,” said Streeter, referencing Trump’s “Liberation Day” tariffs announced on April 2. “The UK is scrambling to stem economic bleeding as growth forecasts deteriorate.”

Gold Prices Dip as Trade Fears Ease

Gold retreated from record highs as thawing US-China tensions reduced safe-haven demand.

• Gold futures (GC=F) fell 0.8% to $3,394.60 per ounce.


• Spot gold dropped 1.6% to $3,376.

Despite the pullback, prices remain near all-time peaks as investors hedge against lingering uncertainty. Adrian Ash, Director of Research at BullionVault, observed a surge in first-time gold buyers amid Trump’s trade policies, coupled with profit-taking from existing holders. “Record prices are tempting sellers, but long-term fears about tariffs and inflation keep demand alive,” he said.

FTSE 100 and Global Equity Markets

The FTSE 100 (^FTSE) slipped 0.3% to 8,570.33, mirroring lackluster sentiment across European markets. Equities struggled as traders balanced trade optimism against concerns over delayed Fed easing and weaker UK growth.

Market Outlook: Navigating Uncertainty

Oil’s Fragile Rally
While oil prices rebounded, analysts caution that gains hinge on tangible progress in Switzerland. A breakdown in talks or renewed tariff threats could swiftly reverse momentum. Additionally, OPEC+ supply decisions and global demand trends—particularly from China—will play pivotal roles in the coming weeks.

Pound’s Precarious Position
Sterling faces dual pressures from dovish BoE policy and a resilient dollar. A rate cut could further weaken GBP, though much depends on whether the move is framed as a one-off adjustment or the start of a prolonged easing cycle.

Gold’s Resilience Tested
Gold’s dip may be temporary if trade talks stall or central banks signal prolonged accommodative policies. With inflation risks simmering, the metal’s role as a store of value could see renewed interest.

Conclusion: Trade Talks Set the Tone

The May 2025 US-China negotiations represent a critical juncture for global markets. While oil prices have priced in cautious optimism, currencies and precious metals remain sensitive to central bank actions and geopolitical developments. Investors are advised to monitor:

1. Trade Talk Outcomes: Any signs of de-escalation or renewed tensions.


2. Central Bank Policies: Fed and BoE guidance on inflation, growth, and future rate moves.


3. Economic Data: US and Chinese PMIs, UK GDP revisions, and oil inventory reports.

As markets navigate this complex landscape, volatility is likely to persist, underscoring the importance of strategic diversification and risk management.