08:43 AM EDT, 04/10/2025 (MT Newswires) -- Oil prices turned sharply lower early on Thursday following a day-prior rise of nearly 5% after Donald Trump partially backed off his blanket tariff threats, but hiked levies on China as the world's two largest economies descend into a trade war.

West Texas Intermediate crude oil for May delivery was last seen down US$1.59 to US$60.76 per barrel, while June Brent crude dropped US$1.61 to US$63.87.

Markets surged on Thursday as Trump issued a partial retreat from his tariff threats, pausing tariffs for 90 days and lowering levies to 10%. His unexpected move came as treasury markets staggered, with yields shooting higher. However the U.S. president hiked levies on imports from China to 125%, with China on Thursday boosting its tariffs on U.S. products to 84%.

"Markets spoke, bonds the loudest, and it led to a capitulation in its purest possible form, a partial one, anyway, regardless of how it has been spun and sold ... Will it really be 90 days? Or maybe 5 days or perhaps 2 years? Will it really be 10% or will it be upped to 20% in a few days? And lest we forget the great and stubborn nemesis, China, who has to live with an exorbitant punitive import tax for now with potentially grave economic consequences," PVM Oil Associates noted.

Trump's walk-back on import taxes has refocused the market on weak fundamentals for oil as supply is on the rise while the global economy weakens amid the U.S. trade battles. UBS on Thursday lowered its 2025 average price target for Brent crude by US$6.00 to US$66.00 per barrel and by US$7.00 to US$65.00 for 2026.

"We now expect the oil market to be in a surplus because of lower demand and higher OPEC+ production: looser by 0.4Mb/d in 2025 with a 0.4Mb/d surplus and 0.5Mb/d looser for 2026 with a surplus of 0.8Mb/d. Initial estimates from our economists point to a 50bps impact on global GDP and potentially twice as much. We cut our oil demand growth estimate for 2025 by 0.4Mb/d to +0.7Mb/d and for 2025 and 0.5Mb/d for 2026, to just +0.5Mb/d," the investment bank wrote.

The drop comes even with tightened U.S. supply, as the 591,000 barrel per day Keystone pipeline, which carries Canadian oil to U.S. refineries, remains shut after a Tuesday rupture spilled 3,500 barrels of oil into a North Dakota field.