Oil prices have stabilized following Monday's sharp declines, with WTI crude at $64.13/bbl and Brent at $66.90/bbl as markets digest the extension of the US-China tariff truce and prepare for the pivotal Trump-Putin summit scheduled for August 15 in Alaska. The modest recovery masks underlying bearish fundamentals, including accelerated Chinese demand peak forecasts, continued OPEC+ production increases, and persistent economic headwinds. While geopolitical developments provide short-term volatility, structural oversupply concerns are pushing major forecasters to revise demand projections downward.

WTI crude rose to $64.16/bbl on August 12, up 0.31% from the previous day, while Brent gained 0.55% to reach $66.99/bbl. This modest recovery follows a brutal week where both benchmarks fell more than 4%, with Brent declining 4.4% and WTI dropping 5.1% in the week ending August 9

The relief rally was triggered by President Trump's decision to extend the tariff truce with China by 90 days, delaying triple-digit duties on Chinese imports that were scheduled to take effect. This announcement came just hours before new tariffs were due to be implemented, providing temporary relief to concerns about escalating trade tensions between the world's two largest oil consumers.

Technical analysis suggests oil markets remain in a precarious position, with WTI testing critical support at $62.50 and Brent facing resistance at $69.65. The descending channel that has characterized Brent's price action continues to constrain upward momentum, with analysts noting that a break below $64.05 would confirm the bearish trend continuation.

Crude oil prices are testing key resistance levels amid mixed technical pressures, with positive signals emerging on the RSI indicator but overall momentum remaining fragile. The failure to decisively break above these technical barriers reflects the underlying fundamental weakness in the market.

The most significant near-term catalyst is the confirmed meeting between President Trump and Russian President Putin scheduled for August 15 in Alaska. This represents Putin's first visit to the US since 2015 and the first bilateral summit between sitting US and Russian presidents since June 2021

The meeting carries substantial implications for oil markets, as any progress toward ending the Ukraine conflict could lead to the easing of sanctions on Russian oil exports. Russia currently exports approximately 7 million bpd (4.68 million bpd crude, 2.5 million bpd refined products), and any reduction in sanctions pressure could significantly impact global supply dynamics

However, expectations remain tempered, with analysts noting that Putin gains valuable diplomatic recognition by meeting with Trump without offering significant concessions. Ukrainian officials and Western experts express scepticism about the potential for meaningful breakthroughs, particularly given Ukraine's exclusion from the initial discussions

The extension of the US-China tariff truce provides temporary relief, but underlying tensions persist. Trump's threat of secondary sanctions on countries purchasing Russian oil, including major buyers like India and China, continues to create uncertainty

Trump's escalating tariff policies present both upside and downside risks to oil demand, with increased duties on imports from multiple countries expected to slow economic activity and disrupt supply chains

The most significant fundamental development is the sharp downward revision of Chinese oil demand forecasts, with the IEA cutting its 2025 projection to just 98,000 bpd growth, down from 210,000 bpd previously. China's oil demand is now expected to peak at 16.9 million bpd by 2027-2028, roughly two years earlier than previously forecast

This dramatic shift reflects extraordinary domestic sales of electric vehicles and the continued expansion of high-speed rail and natural gas-powered trucks. State-owned China National Petroleum Corp. now projects domestic oil demand could peak as early as this year

OPEC's latest assessment shows Chinese demand growth of only 220,000 bpd in 2025, down from 290,000 bpd in 2024 and significantly below the 310,000 bpd projected just six months ago. This represents a fundamental shift from China's historical role as the primary driver of global oil demand growth

The implications extend beyond China, with global oil demand growth now expected to slow to a "trickle" in coming years, reaching a maximum of 105.5 million bpd by 2029 before declining. India emerges as the critical growth driver, but with projected increases of only 160,000 bpd in 2025

OPEC+ confirmed its decision to increase production by 547,000 bpd for September 2025, marking the sixth consecutive month of output hikes. The eight participating countries (Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria, and Oman) are systematically unwinding their 2.2 million bpd voluntary cuts

The production increases follow this timeline:

This aggressive restoration of supply reflects OPEC+'s strategic shift toward reclaiming market share rather than price support, with the coalition citing "steady global economic outlook, healthy market fundamentals and low oil inventories" as justification.

The group maintains flexibility to pause or reverse increases if market conditions deteriorate, with the next meeting scheduled for September 7. However, the commitment to unwinding cuts appears firm, with an additional 1.65 million bpd in cuts potentially subject to review

US crude oil inventories continue to show mixed signals, with the latest EIA data showing a larger-than-expected draw of 3.029 million barrels for the week ending August 1. This brought commercial crude stocks to 423.7 million barrels, approximately 6% below the five-year average

The inventory draw was supported by refineries operating at 96.9% capacity, the highest utilization rates in months, reflecting strong seasonal demand. However, stocks at the Cushing, Oklahoma delivery hub increased by 453,000 barrels, indicating some regional supply pressures

China's oil inventory situation has reached critical levels, with commercial stocks hitting an all-time high of 997.3 million barrels in July, rising by 95 million barrels year-over-year. Overall Chinese stocks (commercial and strategic) stood at 1.21 billion barrels, an all-time high.

However, market sources indicate Chinese crude inventory began falling in August, with Kpler data showing a decrease of about 7.83 million barrels from July's record high. This inventory drawdown could provide some support for import demand in the near term.

China's economic outlook remains challenging, with producer prices falling 3.6% year-over-year in July, steeper than expected, while consumer prices remained flat. This reinforces concerns about persistent deflation risks concentrated in manufacturing

US economic data also shows mixed signals, with the July jobs report showing much weaker employment growth of 73,000 jobs versus expectations of 100,000. This has raised concerns about broader economic momentum and energy demand growth

The upcoming Trump-Putin meeting creates significant two-way risk for oil prices. A breakthrough in peace talks could lead to increased Russian oil supplies and lower prices, while a breakdown could trigger significant risk premiums

Experts warn that failure in peace negotiations could shift markets back to bullish expectations, potentially triggering sharp gains in oil prices. The binary nature of this outcome creates substantial volatility potential.

The fundamental outlook remains bearish despite short-term geopolitical noise, with structural oversupply concerns dominating. Key assumptions:

Growing probability of deeper price weakness if multiple bearish factors align:

Limited upside potential requires significant supply disruption:

The current environment favours companies with operational flexibility and strong balance sheets. Integrated majors benefit from refining margin strength, while pure-play producers face margin pressure at sustained sub-$70 oil

The market structure favours volatility strategies around key events rather than directional bets. The August 15 summit represents a significant binary risk that could drive substantial price moves in either direction

Central banks face the challenge of navigating energy-driven inflation concerns while supporting economic growth. The divergence between short-term geopolitical risks and longer-term structural oversupply creates complex policy considerations

The oil market on August 12, 2025, reflects a complex interplay of short-term geopolitical developments and longer-term structural shifts. While the Trump-Putin summit provides near-term uncertainty and volatility potential, the fundamental picture has deteriorated significantly with earlier Chinese demand peak forecasts and continued supply growth from OPEC+.

The extension of the US-China tariff truce provides temporary relief, but the underlying bearish fundamentals suggest any rallies will likely be limited in scope and duration. Markets are likely to remain range-bound between $62-68/bbl for WTI unless the Alaska summit produces unexpected outcomes. The key will be monitoring whether geopolitical developments can overcome the increasingly bearish supply-demand fundamentals that are driving major forecasting agencies to continuously revise their outlook downward.

Risk Disclaimer: This analysis reflects current market conditions as of August 6, 2025. Rapid changes in economic data, geopolitical developments, or central bank communications could materially alter the outlook. Diversification and appropriate risk management remain essential in the current environment. None of this is financial advice, Wizard Macro Research cannot be held responsible for any losses