TOKYO, May 13 - Oil prices eased on Wednesday after advancing for three straight sessions, as traders weighed uncertain prospects for a lasting ceasefire in the Iran conflict alongside U.S. President Donald Trump's trip to China for talks with President Xi Jinping.
Brent crude futures fell 82 cents, or 0.76%, to trade at $106.95 a barrel at 0051 GMT. U.S. West Texas Intermediate (WTI) slipped 66 cents, or 0.65%, to $101.52. Both benchmarks have mostly stayed at or above the $100 per barrel threshold since the United States and Israel launched attacks on Iran at the end of February and Tehran effectively closed the Strait of Hormuz.
Markets saw a notable jump on Tuesday, when oil rose by more than 3% as hopes for a durable U.S.-Iran ceasefire dimmed, reducing expectations that the strait - a conduit for roughly one-fifth of global oil and liquefied natural gas under normal conditions - would reopen quickly.
President Trump said on Tuesday that he does not think he will need China’s help to end the war with Iran, even as prospects for a long-term peace faded and Tehran tightened control around the strait. China remains the largest purchaser of Iranian oil despite pressure from the Trump administration. Mr. Trump was scheduled to meet his Chinese counterpart in Beijing on Thursday and Friday.
Analysts emphasized the scale and duration of supply disruptions as a major influence on price levels. Eurasia Group noted in a client note that “the length of the disruption and the scale of the supply loss - already more than 1 billion barrels - means oil prices are likely to remain above $80 per barrel for the rest of the year.”
Rising crude prices are beginning to leave visible marks on the U.S. economy, the world’s largest, as more expensive oil drives up fuel costs. Economists cited in the reporting expect to see second-round effects from higher energy prices emerge in the months ahead.
In April, U.S. consumer prices rose sharply for a second successive month, producing the largest annual increase in inflation in almost three years. That development has reinforced expectations that the Federal Reserve would hold interest rates steady for a period.
"The marked increase in inflation across advanced economies has yet to cause real spending to contract, but the widespread decline in consumer sentiment and hiring intentions points to worse to come," the Capital Economics said in a client note.
Higher rates translate into costlier borrowing, which can weigh on economic activity and, by extension, reduce oil demand if elevated financing costs persist.
Supply-side signals were also apparent in U.S. inventories. Market sources citing American Petroleum Institute data indicated that U.S. crude inventories fell for a fourth consecutive week last week, with distillate inventories also declining. Official inventory figures from the U.S. Energy Information Administration are scheduled for release at 10:30 a.m. ET (1430 GMT) on Wednesday, with a poll also forecasting a drop in stockpiles.
With geopolitical tensions around the Strait of Hormuz, persistent supply losses, elevated inflation and shifting inventory levels, traders and policymakers remain attentive to a range of factors that could keep oil prices elevated even as short-term swings occur.
Summary
Oil pulled back after a three-day rally as uncertainty over the Iran ceasefire and the U.S.-China summit influenced markets. Brent and WTI both retreated but remain elevated, supported by ongoing supply disruptions, inflationary pressures, and declining U.S. inventories ahead of official EIA data.
Key impacts
- Energy markets - Prices remained elevated amid supply disruptions and inventory draws.
- Consumer sector - Higher oil translates into more expensive fuels, contributing to inflationary pressures for households.
- Financial conditions - Elevated inflation and central bank rate expectations may tighten borrowing costs, affecting demand dynamics across sectors.