Oil prices edged lower on Wednesday after three consecutive sessions of gains, as investors weighed a fragile ceasefire in the Iran conflict and looked ahead to a high-stakes meeting between US President Donald Trump and Chinese President Xi Jinping.
Brent crude futures fell 82 cents, or 0.76%, to US$106.95 a barrel at 0051 GMT. US West Texas Intermediate (WTI) crude dropped 66 cents, or 0.65%, to US$101.52.
Despite the dip, both benchmarks have remained above or near the US$100 per barrel mark since the US and Israel launched attacks on Iran at the end of February, with Tehran effectively tightening its grip over the Strait of Hormuz.
Prices had risen more than 3% on Tuesday, extending earlier gains as optimism for a lasting US-Iran ceasefire faded, raising concerns that the key shipping route for about a fifth of global oil and liquefied natural gas flows could remain under threat.
US President Donald Trump said on Tuesday he does not think he will need China’s help to end the war with Iran, even as prospects for a durable peace deal weakened further.
China remains the largest buyer of Iranian oil despite ongoing pressure from Washington. Trump is scheduled to meet 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 note.
The conflict has also begun to weigh on the US economy, with higher oil prices pushing up fuel costs and fuelling expectations of broader inflation pressures in the months ahead.
US consumer prices rose sharply in April for a second straight month, marking the largest annual increase in nearly three years. That has reinforced expectations the Federal Reserve will keep interest rates elevated for longer.
“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.
Higher interest rates are expected to weigh on oil demand by increasing borrowing costs and slowing economic activity.
US crude inventories fell for a fourth straight week last week, while distillate stocks also declined, according to market sources citing American Petroleum Institute data.
Official inventory figures from the US Energy Information Administration are due later on Wednesday, with a Reuters poll also expecting another draw in stockpiles.
Reuters
