Oil Steadies Ahead of Trump-Xi Talks as Iran War Tensions Simmer – Yahoo Finance
(Bloomberg) — Oil steadied following a meeting between US President Donald Trump and Chinese leader Xi Jinping where discussions included the war in Iran and closer oil ties between the two nations.
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West Texas Intermediate crude was little changed to settle above $101 a barrel, while Brent closed near $106. The US said the leaders of the two countries discussed increased oil trade, and that both sides agreed Iran can never have a nuclear weapon.
“As long as the path still appears to be leaning toward diplomacy rather than outright escalation, the market remains focused on the endgame — namely, when flows ultimately resume — even as that timeline continues to slip,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group, referring oil shipments disrupted by the war.
The Trump-Xi summit was held against the backdrop of a Middle East conflict that shows no signs of a resolution. Iran said on Thursday it’s now allowing Chinese ships to transit the Strait of Hormuz. But in the latest sign of Tehran exercising its control of the crucial waterway, a ship was taken in the Gulf of Oman and is heading to Iranian waters, a UK naval group said without identifying the vessel or its country of registration.
The war has driven global oil inventories down at a record pace, and the market will remain “severely undersupplied” until October even if the conflict ends next month, according to the International Energy Agency.
Flows of crude and fuels through the strait fell by almost 6 million barrels a day in the first quarter after hostilities began in late February, according to the US Energy Information Administration. Only a trickle of tankers have exited the Persian Gulf during the war.
Prior to the meeting in Beijing on Thursday, which lasted more than two hours, Trump said that “the relationship between China and the USA is going to be better than ever before.” This week, Trump told reporters at the White House that trade talks would be prioritized over discussions about the Middle East conflict. Still, Xi also cautioned that Taiwan could lead to “clashes” between the superpowers.
In the Persian Gulf, a ceasefire has been in place since early April, despite a series of flareups, but the US and Iran appear to be making little progress toward resolving their differences and agreeing on a peace proposal. That’s kept Hormuz effectively closed, choking off crucial energy supplies to global customers.
A sanctions waiver issued by the US that had allowed for the purchase of Russian oil on water is set to expire this weekend, leaving refiners in India — one of the biggest buyers — especially vulnerable. The South Asian nation has imported bumper volumes so far this month.
Despite signs of physical strain, the market appears relatively stagnant. WTI’s call skew — a premium for bullish options bets — shrank to its smallest since January, while open interest in both major benchmarks hovers near multi-month lows. Several Gulf coast-linked crude grades have also eased in recent weeks, as the pull on US exports wanes, with buyers drawing on inventories they built up earlier.
“The energy market has entered a period of relative calm, but we argue the recent easing in the market is temporary and renewed periods of angst are just around the corner if there is no resumption of flows imminently,” said Ryan McKay, senior commodity strategist at TD Securities.
–With assistance from Charles Gorrivan and John Deane.
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