Oil prices fell during Wednesday’s trading, ending a three session winning streak as caution returned to markets while investors awaited developments around the fragile ceasefire in the Middle East, alongside the upcoming summit in China between US President Donald Trump and Chinese President Xi Jinping.
Brent crude fell by around $1.47, or 1.4%, to $106.30 per barrel, while West Texas Intermediate dropped $1.41, or 1.4%, to $100.77 per barrel. Despite this decline, prices remain near elevated levels, with both benchmarks trading around or above the $100 per barrel mark since attacks on Iran escalated and Tehran effectively closed the Strait of Hormuz.
Supply concerns remain the main driver of market movement, as geopolitical uncertainty in the Middle East continues to provide clear support for prices, even as traders struggle to find a decisive direction. The market has also become highly sensitive to any new development from the region, increasing the likelihood of sharp swings in both Brent and WTI.
Oil had risen more than 3% in the previous session as optimism faded over securing a lasting ceasefire between Washington and Tehran, reducing the chances of reopening the Strait of Hormuz, through which around one fifth of global oil and liquefied natural gas flows usually pass.
In the same context, Trump said he does not believe he will need China’s help to end the war with Iran, despite fading chances of reaching a lasting peace deal and Tehran tightening its control over the strait. These remarks come ahead of his expected meeting with Chinese President Xi Jinping in Beijing, with China holding particular importance as the largest buyer of Iranian oil despite US sanctions pressure.
Eurasia Group estimates that the length of the supply disruption and the scale of losses, which have already exceeded one billion barrels, could keep oil prices above $80 per barrel until the end of the year. Meanwhile, the impact of the war is beginning to weigh on the US economy, as higher fuel costs raise expectations of indirect inflationary effects in the coming months.
As for gold, prices held steady as investor caution dominated the market after hopes faded for a peace agreement between Washington and Tehran, alongside anticipation of the Trump and Xi summit in Beijing. Although gold continues to benefit from geopolitical uncertainty, dollar strength and higher US inflation readings limited gains for the precious metal, especially as markets grew more concerned about ongoing disruptions in the Strait of Hormuz and the energy related pressures they may create.
Recent US inflation data also reinforced market expectations that the Federal Reserve may keep interest rates elevated for longer, after consumer prices rose sharply in April for the second straight month. With borrowing costs remaining high, oil demand could gradually face pressure, especially if consumer confidence and hiring intentions weaken across advanced economies.
On the inventory side, data from the American Petroleum Institute showed that US crude inventories fell for the fourth consecutive week, while distillate inventories also declined, adding another supportive factor for prices as tensions linked to the war with Iran continue.
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