Oil prices experienced a temporary rally, but risks remain as President Trump threatens a further 50% tariff on Chinese goods. It is improbable that China will lift its current 34% tariff, raising concerns over market escalation and oil demand.
OPEC+ increased supply recently, impacting the Brent-Dubai spread positively. However, ongoing economic downturn signals may lead OPEC+ to reconsider their supply strategy, as lower prices diverge from the Saudi fiscal breakeven of US$90/bbl.
US drilling activity appears to slow, which could support market prices. The Dallas Federal Reserve Energy survey indicates producers require an average of $65/bbl to profitably drill a new well, highlighting the fragility of US oil output stability.
Short Term Price Surge Challenges
What we’ve seen is a short-term price surge in oil, but it’s more of a bounce than a reversal. The move comes with complications, specifically stemming from Washington’s latest tariff threats. With a potential 50% hike on existing sanctions applied to Chinese imports, there’s a fresh layer of strain in global trade. This is not merely a diplomatic gesture—if pressures escalate and Beijing maintains its 34% retaliatory levy, we’re likely looking at weaker global oil demand from industrial slowdowns and reduced export activity.
From our side of the screen, that’s where the concern lies. Tension between two economic powerhouses doesn’t simply ripple—it drags sentiment, compresses expectations, and underpins volatility in energy markets. As traders, we can’t afford to presume either side will soften. What’s been laid out implies that trade-sensitive commodities, especially crude, will remain caught in the crossfire.
On the production side, there’s some technical uplift from the Brent-Dubai spread reacting to recent increases in supply from allied producers. That gap helps us gauge regional refining dynamics, and the narrowing back towards parity suggests that sour crude availability in Asia is becoming less constrained. Still, it’s premature to infer long-term pricing strength from this alone.
Broader Demand Signals
The broader demand signals don’t lend confidence. Growth indicators are flashing slower expansion. That’s not hypothetical—it means that barrels priced above fiscal thresholds could face downward pressure if export balances don’t shift. Riyadh has historically needed oil near $90 per barrel to balance state budgets, so lower prices aren’t merely inconvenient; they’re structurally disruptive. That sets the stage for further cuts or policy shifts should the economy show protracted weakness.
One area offering potential reprieve is in the shale patch. Recent data out of the Dallas Fed points to a stall in drilling activity. We’re looking at a break-even of around $65 per barrel for new drilling to stay economically viable. That’s our soft floor. Producers won’t keep bringing new wells online if it dips too far below that. So whilst that may seem restrictive at first glance, it’s also a quiet support line for pricing going into the next few weeks. If output doesn’t ramp up, any rebound in demand—even marginally—could squeeze availability.
What we need to consider in the coming sessions is how these levels hold up while trade and production decisions unfold. Output restraint, not enthusiasm, now governs much of the market’s pricing mechanics.
