Market Insights May 12, 2025

Oil: a delicate balance between supply and demand

Unlike other risk assets, oil has seen little benefit from the recent US administration’s reversals on tariffs. For now, economic uncertainties remain significant, and investors have opted for caution toward an asset so closely tied to global growth. Additionally, OPEC surprised markets by announcing a faster-than-expected increase in production. While the consensus had anticipated a very gradual rollback of the cuts implemented since 2022, the pace of easing took many off guard. This shift can be explained in part by divergences among group members, as well as pressure from the United States, keen to keep gasoline prices in check. In this context, market sentiment toward oil has turned sharply negative, a factor that could paradoxically provide technical support. Meanwhile, the latest macroeconomic announcements have sparked renewed hope for an improvement in the global outlook. As a result, the balance between bullish and bearish forces is gradually stabilizing. We expect oil prices to remain within a range close to current levels, an acceptable compromise for both producers and consumers.

The tariff tensions continue to subside

As anticipated, negotiations between Washington and its main trading partners are intensifying. A month after suspending prohibitive “reciprocal” tariffs, Donald Trump announced a first major agreement with the US’s steadfast ally, the United Kingdom. This deal was likely the easiest to finalize, as the UK is one of the few countries with a relatively balanced trade relationship with the United States. In practice, the US agreed to lower tariffs on British steel, aluminium, and automobiles, although a significant portion of UK exports to the US will remain subject to a 10% tax. In return, London committed to increasing imports of American agricultural products.

The conclusion of this agreement is good news for other countries seeking a compromise with Washington. However, the persistence of the 10% base tariff appears to mark a negotiating threshold that may prove difficult to overcome. Additional announcements are expected in the coming weeks. Talks with Switzerland are progressing, and the European Union continues to express a strong desire to reach a swift resolution on the matter.

The weekend’s most notable development, however, concerns the warming of relations between the world’s two largest economic powers. Washington and Beijing agreed to suspend a portion of their punitive tariffs for a 90-day period. As a result, the tariff on Chinese goods has been lowered to 30% (from 145% previously), while tariffs on American exports to China have dropped to 10% (from 125%). This move was expected, as the previous situation had become unsustainable, effectively amounting to a mutual embargo that threatened the supply chains linking the two deeply interdependent economies. With year-end holiday orders typically negotiated during this period, the US thus avoids the risk of shortages for many Chinese imports.

These developments confirm that the US president and his administration are not pursuing an all-or-nothing approach but are primarily seeking concessions from their trade partners. These compromises, and potential follow-up agreements, should help ease lingering fears of a deep recession in the US and globally. Financial markets have welcomed the news: the recovery continues on the stock exchanges, with most indices returning to positive territory since the beginning of 2025.

This week’s figure: 8.1%

Corresponds to the year-on-year growth of Chinese exports in April, significantly exceeding expectations despite US tariffs, notably thanks to trade rerouting through other economies. Exports to the United States dropped by more than 20%, while those to ASEAN (Southeast Asia) rose sharply, illustrating a global reshaping of trade flows.