Oil prices traded modestly higher on Thursday as markets closely followed the summit between Donald Trump and Xi Jinping for signs that diplomatic discussions could help ease tensions surrounding the Iran conflict.
Trump is expected to encourage Beijing to use its influence with Tehran in an effort to secure a deal with Washington aimed at ending the war. However, analysts remain doubtful that Xi will place significant pressure on one of China’s key strategic partners.
Brent crude futures rose 45 cents, or 0.43%, to $106.08 a barrel by 07:14 GMT, while U.S. West Texas Intermediate crude futures gained 41 cents, or 0.41%, to $101.43 a barrel.
Rising Inflation Risks Continue to Pressure Energy Markets
Both benchmark oil contracts had moved lower on Wednesday as traders worried that higher fuel costs could add to inflationary pressures and increase the likelihood of additional U.S. interest rate hikes.
Brent crude dropped by more than $2 per barrel in the previous session, while WTI crude fell by more than $1 per barrel.
At the opening of the two-day summit in Beijing, Xi Jinping told Trump that trade discussions were progressing, although he warned that disputes surrounding Taiwan could push relations between the two countries onto a dangerous path.
Xi’s remarks, published by Chinese state news agency Xinhua, came ahead of what Trump described as potentially the “biggest summit ever” following a ceremonial welcome at Beijing’s Great Hall of the People.
Traders Adopt Wait-and-See Approach
Analysts at ING Group said in a note that “Oil prices are in a wait-and-see mode,” while cautioning that markets may be overly optimistic about the possibility that U.S.-China talks could deliver meaningful progress toward resolving the Iran conflict.
The Strait of Hormuz, one of the world’s most strategically important energy corridors, has remained largely closed since the outbreak of the war at the end of February.
“Failure to make meaningful progress on reopening the strait could leave the US with few options other than renewed military action,” said Tony Sycamore of IG Group in a research note.
Iran Expands Regional Shipping Arrangements
Iran appears to have tightened its grip over the Strait of Hormuz by securing agreements with Iraq and Pakistan to transport oil and liquefied natural gas from the region.
A Chinese supertanker carrying two million barrels of Iraqi crude successfully crossed the strait on Wednesday after being stranded in the Gulf for more than two months. It marked only the third tanker to leave the strait since the conflict began.
IEA Warns Supply Could Fall Behind Demand
The International Energy Agency said on Wednesday that global oil supply is now expected to lag behind demand this year as the conflict disrupts Middle Eastern production and rapidly depletes inventories.
Prior to the escalation of the war, the agency had forecast a global supply surplus.
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