Brent crude futures fell 82 cents, or 0.76%, to $106.95 per barrel and West Texas Intermediate crude dropped 66 cents, or 0.65%, to $101.52 per barrel on Wednesday, marking a decline from the previous session's gains. Despite Wednesday's decline, both benchmarks have largely traded around or above the $100-per-barrel mark since the US and Israel launched attacks on Iran at the end of February and Tehran effectively shut the Strait of Hormuz. Oil prices had climbed more than 3% on Tuesday as hopes for a lasting ceasefire between the US and Iran weakened, reducing expectations that the Strait of Hormuz could reopen soon. The strategically important shipping route handles nearly one-fifth of global oil and liquefied natural gas supplies, making its continued closure a significant market concern.
US President Donald Trump said on Tuesday that he does not believe he needs China's help to end the conflict with Iran, even as tensions remained high and Tehran tightened control over the strait. The comments came ahead of Trump's scheduled meeting with Chinese President Xi Jinping in Beijing on Thursday and Friday. Trump told reporters at the White House on Tuesday that the Iran war is unlikely to feature heavily in talks with Chinese counterpart Xi Jinping, saying trade discussions would be prioritized. "We have Iran very much under control," Trump added, despite the ongoing supply disruptions. China remains the biggest buyer of Iranian oil despite pressure from the Trump administration, adding complexity to diplomatic efforts to end the conflict.
The U.S. Energy Information Administration now assumes the Strait of Hormuz will be effectively closed through late May, leading to much larger losses of Middle Eastern oil and gas supplies than its prior forecasts. The agency had earlier expected the waterway would be shut through late April. Even after flows resume through the Strait of Hormuz, it will take at least until late 2026 or early 2027 for oil output and trade patterns to return to pre-conflict levels, according to the EIA. The Strait of Hormuz has been effectively closed since the war over 10 weeks ago, with a US blockade of Iranian ports in mid-April adding another sticking point in diplomatic efforts to end the conflict. There were no ocean-going tankers observed at Iran's Kharg Island over the past several days, satellite images show, the first sign of an extended halt at the nation's main export hub since hostilities began.
Analysts said the continued disruption in oil flows could keep prices elevated for months, with Eurasia Group warning that oil prices are likely to remain above $80 per barrel for the rest of the year. The prolonged conflict has also begun affecting the broader global economy, especially the United States, where higher fuel costs are contributing to inflationary pressure. US consumer prices rose sharply for a second consecutive month in April, leading to the largest annual inflation increase in nearly three years. The data strengthened market expectations that the Federal Reserve may keep interest rates unchanged for a longer period, as higher interest rates generally make borrowing more expensive and can weigh on fuel demand and economic activity.
US crude oil inventories fell for a fourth consecutive week last week, while distillate stockpiles also declined, according to market sources citing American Petroleum Institute data. Official inventory figures from the US Energy Information Administration were expected later on Wednesday, with a Reuters poll also forecasting another decline in stockpiles. The conflict has created a 14 million bpd supply gap, with the market now facing an aggregate billion-barrel deficit, according to J.P. Hanson, global head of oil and gas at Houlihan Lokey. Saudi Aramco CEO Amin Nasser warned that disruptions to oil exports through the strait could delay a return to market stability until 2027, with the loss of about 100 million barrels of oil per week.
