Oil Prices Retreat as Traders Watch Iran Conflict and Trump-Xi Summit

Oil prices fell on Wednesday, ending a three-day rally as investors monitored the fragile situation in the Middle East and looked ahead to a closely watched meeting between US President Donald Trump and Chinese President Xi Jinping in Beijing.

Brent crude futures dropped $1.47, or 1.4 percent, to $106.30 a barrel by 09:30 a.m. Saudi time. US West Texas Intermediate crude futures also fell 1.4 percent, declining $1.41 to $100.77 a barrel.

Despite Wednesday’s losses, both oil benchmarks have largely traded at or above the $100 mark since the United States and Israel launched attacks on Iran in late February, triggering heightened tensions across the region and leading Tehran to effectively shut the Strait of Hormuz.

The waterway is one of the world’s most important energy shipping routes, carrying nearly a fifth of global oil and liquefied natural gas supplies.

Market analysts said uncertainty surrounding the conflict has kept prices elevated even as traders struggle to predict the next move.

Priyanka Sachdeva, senior market analyst at Phillip Nova, said fears over supply disruptions and continued instability in the Middle East were supporting oil markets. She noted that traders remained highly sensitive to developments in the region, warning that any escalation threatening supply flows could quickly send prices higher again.

Oil prices had climbed more than 3 percent on Tuesday after optimism surrounding a possible US-Iran ceasefire weakened. Hopes that the Strait of Hormuz could soon reopen also faded as tensions intensified.

Trump said on Tuesday that he did not believe he would require China’s assistance in ending the conflict with Iran, despite growing doubts over the prospects for a lasting peace agreement.

China remains the largest buyer of Iranian oil despite ongoing sanctions pressure from Washington. Trump is scheduled to meet Xi in Beijing on Thursday and Friday, with investors expected to closely follow discussions between the two leaders.

Analysts at Eurasia Group said the duration of the disruption and the scale of lost supply, estimated at more than 1 billion barrels, could keep oil prices above $80 per barrel for the remainder of the year.

The prolonged conflict has also begun affecting the US economy, with higher crude prices pushing fuel costs upward and adding pressure on inflation. In April, US consumer prices rose sharply for a second consecutive month, producing the largest annual inflation increase in nearly three years.

The rise in inflation has strengthened expectations that the Federal Reserve will keep interest rates unchanged for now. Higher borrowing costs could eventually weaken fuel demand by slowing economic activity.

Meanwhile, US crude oil inventories declined for a fourth straight week last week, while distillate stockpiles also fell, according to market sources citing data from the American Petroleum Institute.