Oil prices rose sharply on Monday, reaching their highest level in two weeks as the US and China agreed to temporarily slash tariffs, boosting market optimism over a potential resolution to their prolonged trade war.

Brent crude futures settled US$1.05 higher, or 1.6%, at US$64.96 per barrel, while US West Texas Intermediate (WTI) crude gained 93 cents, or 1.5%, to close at US$61.95. Both benchmarks marked their strongest settlements since 28 April.

The agreement, which halts the escalation of tariffs for 90 days, spurred a broad rally across global markets, lifting Wall Street stocks, the US dollar, and crude prices, amid hopes that a full resolution could revive global economic growth and fuel demand from the world's top two oil consumers.

"This was a larger-than-expected de-escalation and represents an upgrade to the outlook," said analysts at ING.

Oil prices also found support from lower exports from Iraq, production halts at Norway's Johan Castberg oilfield, and expectations of reduced supply from Mexico as more barrels are redirected to domestic refining.

Supply risks remain on the horizon, however, as ongoing US-Iran nuclear talks and a potential Russia-Ukraine peace deal could pave the way for increased oil flows from both major producers.

Meanwhile, Saudi Aramco said global oil demand is expected to stay resilient throughout the year, and could even rise further if the US-China trade breakthrough holds.

MSN