Energy markets saw a decline Wednesday following three consecutive days of gains, as traders monitored the unstable truce with Iran while President Donald Trump prepared for crucial discussions with Chinese President Xi Jinping.
Brent crude dropped 82 cents to $106.95 per barrel, while West Texas Intermediate fell 66 cents to $101.52 during early trading. Both oil benchmarks have stayed near or above $100 per barrel since late February when the U.S. and Israel launched military action against Iran, prompting Tehran to effectively block the Strait of Hormuz.
Tuesday saw oil prices jump more than 3% as optimism about a durable U.S.-Iran truce diminished, reducing chances of reopening the strategic waterway that typically handles about 20% of worldwide oil and natural gas shipments.
Speaking Tuesday, Trump indicated he doesn’t anticipate needing Chinese assistance to resolve the Iranian conflict, despite growing doubts about achieving a permanent peace agreement and Iran’s continued control over the strait.
China remains Iran’s largest oil customer even amid pressure from the Trump administration. The American president is scheduled to meet with Xi in Beijing 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 Iranian conflict has begun impacting America’s economy as elevated oil costs translate to higher fuel prices, with economists predicting additional effects in coming months.
Consumer prices in the United States increased substantially in April for the second month running, creating the biggest yearly inflation spike in almost three years and reinforcing expectations that the Federal Reserve will maintain current interest rates.
“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,” the Capital Economics said in a client note.
Higher interest rates increase borrowing costs, which could reduce oil demand. Meanwhile, American crude stockpiles dropped for the fourth week straight, with distillate supplies also falling, according to industry sources citing American Petroleum Institute figures.
The Energy Information Administration will release official inventory numbers at 10:30 a.m. Wednesday, with analysts predicting continued stockpile decreases.
