Oil prices moved modestly higher on Thursday as investors closely monitored the summit between Donald Trump and Xi Jinping for any signs of diplomatic progress that could help ease the conflict involving Iran.
Trump is reportedly expected to urge China to pressure Tehran into reaching an agreement with Washington aimed at ending the war, although analysts remain skeptical that Xi will push one of China’s long-standing strategic allies too aggressively.
Brent crude futures gained 45 cents, or 0.43%, to $106.08 a barrel by 07:14 GMT, while U.S. West Texas Intermediate crude futures rose 41 cents, or 0.41%, to $101.43 per barrel.
Inflation Concerns Weigh on Crude Markets
Both major oil benchmarks declined on Wednesday as investors worried that rising fuel prices could intensify inflationary pressures and potentially lead to additional U.S. interest rate increases.
Brent crude fell by more than $2 per barrel during the previous session, while WTI futures lost over $1 per barrel.
At the beginning of the two-day summit in Beijing, Xi Jinping told Trump that trade negotiations were making progress, although he warned that disagreements over Taiwan could seriously damage relations between the two countries.
Xi’s comments, reported by China’s state-run Xinhua News Agency, came ahead of what Trump has described as potentially the “biggest summit ever” following a high-profile reception at Beijing’s Great Hall of the People.
Markets Remain Cautious on Diplomatic Expectations
Analysts at ING Group said in a note that “Oil prices are in a wait-and-see mode,” adding that markets may be placing too much optimism on the possibility that U.S.-China discussions could generate progress regarding the Iran conflict.
The Strait of Hormuz, one of the world’s most important energy shipping routes, has remained largely closed since the war began 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,” Tony Sycamore, analyst at IG Group, said in a market note.
Iran Tightens Grip on Strait of Hormuz
Iran appears to have strengthened its control over the Strait of Hormuz by reaching 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 passed through the strait on Wednesday after being stranded in the Gulf for more than two months. It marked only the third oil tanker to exit the route since the outbreak of the war.
IEA Warns of Global Oil Supply Deficit
The International Energy Agency warned on Wednesday that global oil supply is now expected to fall short of demand this year as the conflict continues to disrupt Middle Eastern production and rapidly reduce inventories.
The agency had previously forecast a supply surplus before the war escalated.