Oil prices fell on Wednesday, snapping a three-day rally as investors awaited developments around the fragile Middle East ceasefire and braced for a high-stakes summit in China between U.S. President Donald Trump and President Xi Jinping. Brent crude futures dropped $1.47, or 1.4%, to $106.30 a barrel at 0630 GMT. U.S. West Texas Intermediate futures fell $1.41, or 1.4%, to $100.77.
The Reuters Power Up newsletter provides everything you need to know about the global energy industry. Sign up here. Both benchmarks have largely hovered around or above the $100 per barrel mark since the U.S. and Israel began attacks on Iran at the end of February and Tehran effectively shut the Strait of Hormuz.
Concerns over supply disruptions and uncertainty surrounding the Middle East are keeping oil prices well supported, even as traders struggle to establish a clear direction," said Priyanka Sachdeva, senior market analyst at Phillip Nova. "The market remains highly reactive to every update from the region, meaning sharp swings are likely to persist. Any further escalation or direct threat to supply flows could quickly revive strong upside momentum in both Brent and WTI," added Sachdeva. Oil prices rose more than 3% on Tuesday, extending earlier gains as hopes for a lasting U.S.-Iran ceasefire faded, dimming prospects of reopening the strait, through which about a fifth of global oil and liquefied natural gas normally flows.
Trump said on Tuesday he did not think he would need China's help to end the war with Iran, even as hopes for a lasting peace deal dwindled and Tehran tightened its grip over the strait. China is the biggest buyer of Iranian oil despite sanctions pressure from the Trump administration. Trump meets his Chinese counterpart Xi in Beijing on Thursday and Friday.
"The length of the disruption and the scale of the supply loss - already more than 1 billion barrels - means oil prices are likely to remain above $80 per barrel for the rest of the year," Eurasia Group said in a client note. The war with Iran has started to take its toll on the U.S. economy, the world's biggest, as higher oil prices lead to more expensive fuels, and economists expect to see second-round effects in the months ahead. at their audiences, I think that unless they start to realize that, then their demise is going to happen faster.
In April, U.S. consumer prices rose sharply for a second straight month, resulting in the largest annual increase in inflation in nearly three years, bolstering expectations that the Federal Reserve would keep interest rates steady for a while. "The marked increase in inflation across advanced economies has yet to cause real spending to contract, but the widespread decline in consumer sentiment and hiring intentions points to worse to come," Capital Economics said in a client note. Elevated interest rates make borrowing more expensive, potentially denting demand for oil.
As the Iran war continues, U.S. crude oil inventories fell for a fourth straight week last week and distillate inventories also declined, according to market sources citing American Petroleum Institute data.
