(Bloomberg) — Oil was steady as a meeting between US President Donald Trump and Chinese leader Xi Jinping kicked off, set against the backdrop of the Iran war that shows no signs of a near-term resolution.
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Brent crude traded around $106 a barrel after falling 2% in the previous session, while West Texas Intermediate was near $101. Trump said in opening remarks in Beijing after a welcome ceremony that “the relationship between China and the USA is going to be better than ever before.”
The war, meanwhile, has driven global oil inventories down at a record pace, and the market will remain “severely undersupplied” until October even if the conflict ends next month, according to the International Energy Agency. Ahead of the Trump-Xi summit, the US threatened banks and sanctioned additional entities over the sale of Iranian oil to China, the largest buyer of its crude.
Flows of crude and fuels through the crucial Strait of Hormuz fell by nearly 6 million barrels a day in the first quarter after hostilities began in late February, according to the Energy Information Administration. Only a trickle of tankers have been able to exit the Persian Gulf during the war.
“As long as the path still appears to be leaning toward diplomacy rather than outright escalation, the market remains focused on the endgame — namely, when flows ultimately resume — even as that timeline continues to slip,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group.
A ceasefire has been in place since early April, despite a series of flareups, but the US and Iran appear to be making little progress toward resolving their differences and agreeing on a peace proposal. That’s kept the strait effectively closed, choking off crucial energy supplies to global customers.
Iran’s crude shipments have also been curbed due to a US naval blockade of the nation’s ports. Oil jetties at its main Kharg Island export terminal were once again empty on Tuesday, according to satellite images collected by Bloomberg News. For a fourth consecutive period when satellites have captured activity at the facility, no tankers have been spotted.
A sanctions waiver issued by the US that had allowed for the purchase of Russian oil on water is set to expire this weekend, leaving refiners in India — one of the biggest buyers — especially vulnerable. The South Asian nation has imported bumper volumes so far this month.
