Oil backtracked after the U.S. said China backtracked on previous trade commitments causing global markets to stop and drop in their tracks. First it was the President Trump tweet about a 25% tariff on $200 billion in Chinese imports and later confirmation by Treasury Secretary Steve Mnuchin who said that China wanted to go back on clear commitments that had the potential to change the deal significantly. While all the turmoil caused a significant selloff in the price of oil, the real story was how oil rebounded, holding the low $60 handle and backtracked off the tariff threat lows. Now after reversing and closing higher on the day, it gives technical traders a formidable support point to work off. $60 a barrel now looks like the support point, because if you can’t take that out with trade war and tariff threats you are definitely not going to take it out if a trade war is averted. China is signaling that the talks will go on.  Vice Premier Liu will meet with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, on May 9 and 10, according to a statement Tuesday on the Chinese Ministry of Commerce website.

Trade talk hope brought stocks back, but oil seemed to lead the recovery.  It seems that despite the increased potential for a trade war, the talk that it would be negative for Chinese oil demand has not played out so far. We heard over a year ago that the Trump tariffs would slow Chinese, and even Indian oil demand and cause the world and the U.S. to go into a recession.

Well despite a slowing in the Chinese economy. their demand has not fallen. The IEA said just a couple of weeks ago that “In China, the economy seems to be reacting to the government’s stimulus measures with purchasing managers’ indices increasing and export orders recovering, although there are signs that air cargo volumes might be falling,” the IEA said, noting that while demand is strong there are a wide range of outlooks from various analysts and agencies. “Preliminary oil demand numbers for the January-February period show solid growth of 410 kb/d year-on-year. India also saw demand grow by 300,000 bpd, while the U.S. added 295,000 bpd driven by a surging petrochemical sector.” If trade talks break down, you can count on more Chinese stimulus, as they have already lowered reserve requirements for their bank just off of the Donald Trump tweet.

At the same time, while we have seen an increase in oil supplies in recent weeks, the products like gasoline and distillates are a different story. Oil products are below average and that is going to force refiners to draw on supply. Supply that is still being restrained by OPEC and Russia oil production cuts as well as U.S. sanctions on Venezuela and Iran. Yes, I know that Venezuela’s corrupt socialist government has already reduced supply, but the sanctions still make it harder for U.S. refiners to ramp up production.

You also have the increasing tensions with Iran. The U.S. sent the USS Abraham Lincoln, and a bomber task force was being deployed in response to unspecified "troubling and escalatory indications and warnings." A statement from national security adviser John Bolton said the deployments were intended "to send a clear and unmistakable message to the Iranian regime that any attack on United States interests or on those of our allies will be met with unrelenting force."