Oil prices rebounded sharply on Monday, extending last week’s gains as signs of easing tensions between the United States and China reignited hopes for stronger global demand. Brent crude climbed above $88 per barrel, while West Texas Intermediate (WTI) hovered near $84, driven by expectations that smoother trade flows could support manufacturing and energy consumption across both economies.

Trade Thaw Sparks Demand Optimism

Market sentiment improved after Chinese officials indicated that Beijing may lift certain restrictions on US agricultural and technology imports as part of renewed diplomatic efforts. US counterparts reportedly responded positively, hinting at potential tariff reductions on select Chinese goods. The developments, though preliminary, were enough to encourage traders betting on stronger oil demand in the fourth quarter.

China, the world’s largest crude importer, has been under pressure to stimulate domestic consumption amid a fragile property market and sluggish exports. The prospect of improved trade conditions could boost factory activity and freight movement, translating into higher energy needs. “Markets are quick to price in any sign of de-escalation, particularly when it involves China’s import appetite,” said a senior commodities strategist at ING.

Oil Markets Find Support from Broader Economic Signals

The oil rally was further underpinned by a weaker US dollar, which typically supports commodities priced in the currency. The dollar index retreated to near two-week lows after recent data showed softer US inflation, bolstering expectations that the Federal Reserve could maintain or even expand rate cuts in the coming months.

Lower borrowing costs generally support industrial and consumer activity, indirectly lifting fuel consumption. Meanwhile, OPEC+ producers have maintained their disciplined supply cuts, helping keep global inventories tight. Analysts at Goldman Sachs noted that Brent could test the $90 level again if demand data from China and the US continues to improve through late October.

Traders Remain Cautious Amid Geopolitical Risks

Despite the upbeat tone, traders remain wary of geopolitical uncertainty. Any reversal in trade talks or renewed US tariffs could quickly erase recent gains. Additionally, tensions in the Middle East and fluctuating shipping costs through the Red Sea continue to pose risks to supply stability.

Energy firms are also assessing whether current prices justify expanding output. US shale producers have shown restraint in recent months, focusing instead on profitability and debt reduction rather than volume growth. This cautious production stance may help keep oil prices elevated in the near term.

Looking ahead, markets will closely monitor upcoming trade statements from both Washington and Beijing, along with the next OPEC+ technical meeting later this month. Sustained progress on trade could shift the balance from supply-driven price movements toward a demand-led recovery, but volatility is likely to remain a defining feature of the oil market through year-end.