Oil prices rose 1% on Wednesday, reversing early losses as the market took a bullish view on China's stance on potential trade talks with the United States, though gains were capped by continuing fears that the trade war will curb energy demand.

Brent crude futures rose 64 cents to $65.31 a barrel by 0937 GMT while U.S. West Texas Intermediate crude rose 62 cents to $61.95.

Prices declined in early trading but analysts said momentum shifted after a Bloomberg report quoted an anonymous source as saying that China wants more respect from the Trump administration before it will agree to talks.

The source was also quoted as saying that China also wanted the U.S. to appoint a new primary contact in future talks.

"A de-escalation of the trade war between the U.S. and China would reduce the downside in economic growth prospects and limit the downside for oil demand growth," said UBS analyst Giovanni Staunovo.

Global oil demand is expected to grow at its slowest for five years in 2025 and U.S. production gains will also taper off because of U.S. President Donald Trump's tariffs on trading partners and their retaliatory moves, the International Energy Agency said on Tuesday.

Global oil demand this year is expected to rise by 730,000 barrels per day (bpd), the IEA said, down sharply from the 1.03 million bpd it forecast last month. The reduction is larger than a cut in demand estimates made on Monday by the Organization of the Petroleum Exporting Countries (OPEC).

Concerns over Trump's escalating tariffs, combined with rising output from the OPEC+ group comprising OPEC and allies such as Russia, have already dragged oil prices down by about 13% this month.

The uncertainty surrounding trade tensions has led several banks, including UBS, BNP Paribas and HSBC, to cut their crude price forecasts.

Trump has ratcheted up tariffs on Chinese goods to eye-watering levels, prompting Beijing to slap retaliatory duties on U.S. imports in an intensifying trade war between the world's two biggest economies.

Data on Wednesday showed China's gross domestic product (GDP) grew 5.4% year on year in the first quarter, beating the 5.1% expected in a Reuters poll.

"The better than expected performance was precipitated by exporters frontloading shipments ahead of the implementation of U.S. excise duties on Chinese goods and, in all probability, will not be repeated for the rest of the year as the two biggest economies in the world are doing their best to decouple," said PVM Oil analyst Tamas Varga.

Meanwhile, U.S. crude oil stocks rose by 2.4 million barrels in the week ended April 11 while gasoline inventories fell by 3 million barrels and distillate stocks dropped by 3.2 million barrels, market sources said, citing American Petroleum Institute figures on Tuesday.

Source: Reuters