Oil prices fell on Wednesday after three consecutive sessions of gain as Donald Trump headed to China for a high-stakes summit with Xi Jinping.
Brent crude lost 73 cents to settle at $107 a barrel and US West Texas Intermediate fell 62 cents to $101.60, pulling back from a rally that had pushed both benchmarks up on fading hopes for a lasting ceasefire to end the US-Israeli war against Iran.
The benchmarks have hovered at or above $100 since the US and Israel launched strikes on Iran in late February and Tehran retaliated by effectively closing the Strait of Hormuz. Brent has surged from roughly $70 per barrel before the war began.
China is the world’s largest buyer of Iranian oil and any discussion at the summit about the strait’s closure or Tehran’s nuclear programme is likely to move markets significantly.
Mr Trump said on Tuesday he did not think he would need China’s help to end the war, even as prospects for a peace deal appeared to dim and Tehran tightened its grip on the critical waterway.
“I don’t think we need any help with Iran. We’ll win it one way or the other, peacefully or otherwise,” he told reporters before departing the White House for China.
His visit to Beijing on Thursday and Friday comes as the ceasefire between the US and Iran looks increasingly tenuous.
Oil prices rose more than 3 per cent on Tuesday as hopes for a lasting ceasefire faded. Wednesday’s pullback reflected a combination of technical profit-taking after the recent run of gains, signs of slower-than-expected fuel demand growth in China, and US crude inventories remaining above seasonal norms despite draws in some categories.
“The length of the disruption and the scale of the supply loss – already more than one 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.
Analysts noted that physical crude premiums had collapsed from almost $30 above Brent to near parity as refiners delayed purchases, drew down inventories and cut refinery runs, with the relief potentially short-lived. With buffers thinning ahead of peak summer demand, another sharp price spike remains a risk if the strait stays closed. US crude inventories fell for a fourth straight week, according to American Petroleum Institute data, with official figures from the Energy Information Administration due on Wednesday.
“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 note. Treasury yields rose, with the 10-year yield climbing to 4.45 per cent from 4.42 per cent, remaining well above its pre-war level of 3.97 per cent.
Asian equity markets were mixed. Japan’s Nikkei edged up less than 0.1 per cent, South Korea’s Kospi gained 0.9 per cent, partly recovering from a 2.3 per cent drop earlier in the week after a senior government official suggested redistributing AI windfall profits from companies to citizens.
Australia’s S&P/ASX 200 fell 0.3 per cent, Hong Kong’s Hang Seng slipped 0.4 per cent and the Shanghai Composite was little changed. On Wall Street on Tuesday, the S&P 500 fell 0.2 per cent from its all-time high, the Dow added 0.1 per cent and the Nasdaq sank 0.7 per cent from its own record, with chip stocks among the sharpest fallers. Intel slumped 6.8 per cent and Micron Technology dropped 3.6 per cent.
The euro slipped to $1.1741 and the dollar rose to 157.70 yen.
The war’s impact on the broader economy is also showing up in numbers. US consumer prices rose sharply for a second straight month in April, producing the largest annual inflation increase in nearly three years, reinforcing expectations that the Federal Reserve was going to keep interest rates on hold.