Oil Markets Retreat on Supply Glut Fears Despite US-China Trade Breakthrough

Brent crude slipped 0.3% to $64.74 a barrel early Tuesday, while WTI dipped to $61.77, reversing Monday’s 3% rally fueled by a temporary US-China tariff truce.

The pullback reflects growing skepticism about OPEC+ compliance with production cuts and concerns that shale drillers may flood markets if prices stabilize above $65.

Monday’s surge saw Brent hit $65.33 and WTI reach $62.39, their highest closes since April 28, after Washington and Beijing agreed to slash tariffs to 10% for 90 days.

US imports from China now face 30% duties, while Chinese tariffs on American goods dropped from 125%. Analysts caution the deal merely pauses-not resolves-core trade disputes, with ING noting “substantial differences remain on critical issues.”

OPEC+ output climbed 411,000 barrels daily in May, exceeding forecasts, as Saudi Arabia pushes to discipline members flouting quotas. The cartel’s May production now sits 960,000 barrels above April levels, eroding price gains.

Technical indicators signal turbulence: WTI faces immediate resistance at $62.54, with its 50-day EMA supporting at $59.81. MACD momentum readings suggest bullish exhaustion, while Bollinger Band volatility contraction hints at pending directional moves.

US shale firms struggle at current prices, needing $65-$70 per barrel to profitably drill. Diamondback Energy executives warned output could peak then decline without sustained price recovery.

Refiners report stable margins despite crude’s 22% drop since January, with JP Morgan noting tight gasoline inventories cushioning declines. Global funds shifted $280 million into energy ETFs last week despite broader equity outflows, betting on demand rebounds.

Traders now eye US inventory data after conflicting reports of a 1.3-million-barrel draw against Macquarie’s 7.6-million-barrel build forecast. The 90-day trade détente lifts recession fears but fails to address structural oversupply.

With OPEC+ output rising and US producers poised to reactivate rigs above $65, markets face twin pressures of fragile demand and swelling inventories.

Brent’s technical setup shows critical support at $59.45-a break below $55.45 would confirm bearish momentum. As Washington pushes Middle East peace talks that could unlock Iranian oil, traders brace for volatility ahead of June OPEC+ meetings.

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