Trump's China Visit Highlights Geopolitical Risks, but Oil Prices Will Ultimately Be Driven by Fundamentals

Despite the political headlines, the oil market remains focused on one fundamental question: whether global supply will be materially disrupted. In the near term, oil prices are likely to remain elevated. Current market pricing suggests that prices can stay supported above USD 90/bbl as long as geopolitical uncertainty persists. This resilience reflects both the supply shock that has already occurred and the need to replenish inventories that were drawn down during the disruption.

According to the IEA, global oil supply experienced an exceptionally sharp and historically rare decline in March, with output falling by nearly 10 million bpd at one point. The scale of the disruption raised concerns that some of the lost barrels may not be replaced immediately. At the same time, strategic and commercial inventories may need to be rebuilt. Together, these factors are providing a firm floor under prices and explain why the market continues to trade in a high range rather than correcting quickly.

However, the medium-term outlook is becoming less supportive. If geopolitical tensions begin to ease, the current risk premium will gradually fade. In addition, OPEC producers retain more than 4 million bpd of spare production capacity, giving the market substantial flexibility to restore supply. This suggests that the recent price surge should not be interpreted as the start of a structural bull market.

Weakening demand also points to increasing downside risk for oil prices. China's oil demand in April declined by approximately 1.5 million bpd from levels seen earlier in 2026, indicating that higher prices are beginning to suppress end-user consumption. This demand response is an important constraint on further gains. As prices rise, consumption weakens, reducing the market's ability to sustain elevated levels. China's ongoing energy transition and a softer global macroeconomic backdrop further reinforce the view that demand is unlikely to provide durable support for significantly higher oil prices.

As a result, while oil prices may remain elevated in the near term, weakening demand and recovering supply are expected to become increasingly important drivers of a medium-term correction.

The Strait of Hormuz remains the single most important geopolitical variable. Military movements and political statements can trigger immediate price reactions, but they only have lasting significance if they lead to actual disruptions in production, exports, or shipping flows.

Viewed in a broader strategic context, Trump's China visit reflects more than a diplomatic engagement. The discussions extend beyond commodity markets to encompass trade, technology, national security, and macroeconomic priorities. For China, the focus remains on long-term industrial and economic interests. For the United States, priorities include inflation, export opportunities, fiscal considerations, and domestic political pressures. In this sense, the visit represents a reassessment of mutual economic and strategic interests rather than a purely symbolic diplomatic event.

Movements in oil prices will also affect downstream industries by changing feedstock costs, profit margins, and operating rates across sectors such as chemicals, rubber, and polyester. Lower oil prices would ease cost pressures, although weak end-user demand and structural overcapacity could continue to limit margin recovery.

In summary, the oil market is transitioning from a period dominated by geopolitical headlines to one increasingly driven by supply-demand fundamentals. Near-term prices should remain supported by geopolitical uncertainty and inventory replenishment. Over the medium term, however, the balance of risks is shifting to the downside as geopolitical tensions stabilize, supply-side disruptions ease, and demand growth slows.

The oil market appears to be near the upper end of its current pricing range. The recent strength in oil prices reflects a temporary geopolitical premium rather than the beginning of a structural bull market. Unless supply disruptions intensify materially, oil prices are likely to face a gradual correction as the market refocuses on underlying fundamentals.

China's commodity markets are increasingly shaped by the interaction between geopolitics, policy direction, and supply-demand fundamentals. GL Consulting's China Decoder helps global businesses read these signals more clearly, combining Mysteel's proprietary commodity data with policy-anchored analysis to support market monitoring, risk assessment, and strategic planning. Click here to request a trial or demo of China Decoder.