Oil Prices Edge Higher as Markets Watch Trump-Xi Talks for Iran Breakthrough

Oil prices rose modestly on Thursday as investors closely monitored talks between US President Donald Trump and Chinese President Xi Jinping for signs of progress toward easing tensions surrounding the conflict involving Iran, which has severely disrupted global energy supplies.

Brent crude futures climbed 26 cents, or 0.25 per cent, to $105.89 a barrel by early trading, while US West Texas Intermediate crude gained 32 cents, or 0.32 per cent, to $101.34 per barrel.

The gains followed losses in the previous session, when both benchmarks fell sharply amid concerns that rising fuel prices could add to inflationary pressures and increase the likelihood of further US interest rate hikes. Brent had dropped by more than $2 a barrel on Wednesday, while WTI declined by over $1.

Markets remain focused on the high-level summit in Beijing, where Trump and Xi are discussing trade relations, Taiwan and the ongoing Middle East conflict. Analysts say energy traders are particularly watching whether the talks produce any diplomatic movement related to the Strait of Hormuz, a vital shipping route that has remained largely closed since fighting escalated at the end of February.

The shutdown of the strait has stranded oil and liquefied natural gas shipments, tightened global supplies and driven energy prices higher in recent months.

Although Trump has publicly suggested that the United States may not need China’s assistance to resolve the conflict, officials expect the US president to urge Beijing to encourage Tehran toward negotiations aimed at ending the war.

Analysts, however, remain sceptical about how far China will go in pressuring Iran, which has long been regarded as an important strategic partner for Beijing.

ING analysts said oil markets appeared to be in a wait-and-see phase, warning that traders may be placing excessive expectations on the outcome of the US-China discussions.

IG market analyst Tony Sycamore said a lack of meaningful progress toward reopening the Strait of Hormuz could leave Washington facing increasingly difficult choices, including the possibility of renewed military action.

Iran has meanwhile strengthened its influence over shipping in the region and reached arrangements with neighbouring countries including Iraq and Pakistan to continue exporting oil and natural gas despite disruptions.

On Wednesday, a Chinese supertanker carrying two million barrels of Iraqi crude successfully passed through the Strait of Hormuz after being trapped in the Gulf for more than two months. It was reported to be only the third oil tanker to exit the strait since the conflict began.

Adding to supply concerns, the International Energy Agency said this week that global oil markets are now expected to remain in deficit for much of the year as disruptions in Middle Eastern production continue to drain inventories at a rapid pace.

The agency revised its earlier outlook that had projected a supply surplus, citing unprecedented pressure on global energy flows caused by the conflict.