WTI rebounds to near $56.50, oversupply fears might cap gains

• WTI price recovers to near $56.50 in Tuesday’s early European session.

• Concerns over a swelling oil surplus and US-China trade tensions could weigh on the WTI price.

• Traders await the API weekly crude oil stock report later on Tuesday ahead of US-China trade talks.

West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $56.50 during the early European trading hours on Friday. The WTI remains on the defensive amid concerns over excess supply. Traders will closely monitor the American Petroleum Institute (API) weekly crude oil stock report later on Tuesday, along with trade talks between the US and China later this week.

The Organization of the Petroleum Exporting Countries and its allies (OPEC+) have pushed ahead with plans to increase oil supply. This has led analysts to predict a surplus of crude this year and next year. The International Energy Agency (IEA) last week projected a global surplus of nearly 4 million barrels per day in 2026.

The US and China are expected to discuss trade at a meeting in Malaysia later this week, ahead of a meeting between US President Donald Trump and Chinese President Xi Jinping later this month. Any signs of escalating trade tensions between the world's top two oil consumers could add to concerns about an economic slowdown and weaker energy demand, which might drag the WTI price lower.

On the other hand, the expectation that the US Federal Reserve (Fed) will deliver another  quarter-point rate cut  in the October policy meeting could help limit the WTI’s price losses. Traders are currently pricing in nearly a 99% possibility that the US central bank will cut interest rates again next week, followed by another reduction in December, according to the CME FedWatch tool. A Fed rate cut bet generally weakens the US Dollar (USD) and supports the USD-denominated commodity price, as a softer USD makes crude cheaper for foreign buyers.