HG MARKETS:

Crude oil prices witnessed a measurable ascent during Asian trading hours on Monday, building upon the substantial gains achieved in the preceding week. This rally is primarily being fueled by an emergent confluence of positive geopolitical and monetary policy developments, alongside heightened concerns regarding potential constraints on global supply, particularly stemming from intensified sanctions on Russia.

A significant driver of the current market optimism is the perceptible thawing in trade tensions between the world’s two largest economies, the United States and China. Reports surfaced over the weekend that high-level officials from both nations successfully negotiated a preliminary trade framework, setting the stage for a critical meeting between President Donald Trump and President Xi Jinping later this week in South Korea. This anticipated agreement signals a potential de-escalation of the tariff disputes that have previously cast a pall over global energy demand forecasts. Specifically, the market is responding positively to expectations that Washington will refrain from implementing the threatened 100% tariffs on Chinese goods, while Beijing is poised to relax its restrictions on rare earth exports and commit to increased purchases of U.S. soybeans. The potential resolution of these trade uncertainties is mitigating earlier trader anxieties regarding the adverse impact of reciprocal tariffs on crude oil consumption in both the U.S. and China.

The upward movement in oil prices is further underpinned by renewed apprehension surrounding global oil supply stability. This sentiment was galvanized by the United States’ latest imposition of sanctions targeting Russia’s energy sector. These punitive measures have been specifically directed at the nation’s largest oil conglomerates, Lukoil and Rosneft, aiming to intensify pressure on Moscow to establish an immediate ceasefire in the conflict with Ukraine. While the long-term efficacy of these sanctions remains a subject of debate among analysts—given Russia’s past success in circumventing restrictions—the immediate effect is a perceived tightening of global supply. Market attention is now intensely focused on the responses of major Russian oil importers, particularly India and China, and whether they will comply with the U.S. pressure. Any shift in buying patterns by these crucial consumers could have a direct and immediate impact on international crude availability.

Expectations of accommodative monetary policy from the U.S. Federal Reserve (Fed) are also contributing to the bullish outlook for crude. Following the release of unexpectedly soft U.S. consumer price data on Friday, investor conviction for an imminent interest rate cut—a 25-basis-point reduction is widely anticipated—at the Fed’s two-day policy meeting concluding this week has solidified. Lower interest rates typically weaken the U.S. dollar, making dollar-denominated commodities like oil more affordable for holders of foreign currencies, thereby boosting demand.

As a result of these intertwined factors, the primary crude oil benchmarks registered gains: Brent oil futures for December delivery advanced by 0.5%, settling at $66.25 a barrel, while West Texas Intermediate (WTI) crude futures also climbed 0.5%, reaching $61.77 a barrel.