Oil Bulls Eye Rebound As US-China Talks Spark Hope: Yardeni

A rebound in oil prices may be closer than many expect, especially if diplomatic efforts between the U.S. and China yield even modest progress, according to Wall Street strategist Ed Yardeni.

In a note shared Thursday, Yardeni said a potential turning point for crude could emerge from the convergence of declining U.S. shale output and rising expectations for global demand recovery, particularly if trade tensions ease.

“Headlines about US and Chinese diplomats meeting to discuss tariffs may indicate that cooler heads have prevailed; neither side wants to be held responsible for causing an economic downturn,” Yardeni said.

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Crude Extends Deep Slide As OPEC Raises Output More Than Expected

Crude oil prices — tracked by the United States Oil Fund (NYSE:USO) — have dropped 17% year-to-date. Brent crude recently slipped into the low $60s and West Texas Intermediate (WTI) tumbling to $58.

Notably, most of that decline has come in just the past month. Since Donald Trump announced sweeping tariffs on April 2, crude has plunged 18%, reflecting growing fears of a demand shock.

OPEC+ rattled markets last weekend by unveiling a surprise production boost of 411,000 barrels per day in June — three times the volume expected by analysts.

An influx of supply and uncertainty over global demand has only added pressure to fragile oil prices.

The cartel had previously pledged to gradually unwind 2.2 million barrels per day of cuts through late 2026. But that timeline has collapsed. Nearly 960,000 barrels per day will return to the market by the end of June, with another sizable increase expected in July.

Shale Pullback May Tighten US Supply

While OPEC boosts output, U.S. shale producers are reacting to low prices by cutting spending.

A recent Dallas Fed survey of 81 exploration and production firms found that drilling becomes uneconomical below $61 to $70 per barrel, depending on the location.

Rig counts have steadily declined in step with crude prices. Though technological advances have helped maintain output, the ceiling for productivity gains may have been reached.

"Today, geologic headwinds outweigh the tailwinds provided by improvements in technology and operational efficiency," said Travis Stice, CEO of Diamondback Energy Inc. (NASDAQ:FANG), in a May 5 shareholder letter.

Diamondback plans to lower capital expenditures to $3.4 billion–$3.8 billion, from previous guidance of up to $4.2 billion. The company will cut three rigs and one completion crew this quarter. If oil climbs above $65 per barrel, operations could ramp up again, Stice noted. But for now, the focus is on conserving cash.

Trade Talks Could Shift Demand Outlook

The wildcard in the oil market is demand—and that depends heavily on geopolitics.

This week, markets were encouraged by news that U.S. Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer will meet China's Vice Premier He Lifeng in Switzerland on May 10–11 to discuss tariffs.

Yardeni said the US-China meeting of representatives “may indicate that progress to reduce tariffs on both sides can occur before lasting economic damage is done. “

“That would, of course, be good for oil demand and oil prices,” he added.

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