Oil Steady, Strait of Hormuz Holds, and Sanctions Tighten
Oil prices held steady as the meeting between US President Donald Trump and Chinese President Xi Jinping began in Beijing, amidst a war that shows no signs of abating anytime soon. Brent traded around $106 per barrel after falling 2% in the previous session, while WTI hovered around $101.
The market was also closely monitoring the diplomatic tone of the meeting. In his opening statement after the welcoming ceremony, Trump said relations between China and the US would be “better than ever,” but energy supply issues remained a key factor in sentiment as the Iran conflict remains stalemated.
On the supply side, the war has pushed global oil inventories down at a “record” rate, and the market will remain “very undersupplied” through October even if the conflict ends next month, according to the International Energy Agency. This makes prices highly sensitive to any news of oil distribution disruptions.
The biggest disruption remains centered in the Strait of Hormuz. Crude oil and fuel flows through the vital waterway fell by nearly 6 million barrels per day in the first quarter of hostilities that began in late February, according to the Energy Information Administration, and few tankers were able to exit the Persian Gulf during the war. Although a ceasefire has been in place since early April, the US and Iran have reportedly made little progress toward agreeing on a peace plan, effectively keeping the country “closed” and holding back supplies to global customers.
Policy pressure is also mounting ahead of the Trump-Xi summit. The US is threatening banks and imposing sanctions on additional entities linked to Iranian oil sales to China, the largest buyer of Iranian oil. At the same time, oil shipments to Iran are being squeezed by a US naval blockade of the country’s ports; the oil dock at the key Kharg Island export terminal was again empty on Tuesday, according to Bloomberg satellite imagery, and for the fourth consecutive period, no tankers were observed.
Market participants believe the focus remains on when supply flows will recover, as long as the escalation does not lead to a broader conflict. "As long as the path remains toward diplomacy rather than outright escalation, the market remains focused on the 'end game,' which is when supply flows will return," said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. In addition to the Iran factor, the market is also awaiting the impact of the end of the US sanctions waiver, which has allowed Russian oil purchases "over the water," which is set to expire this weekend. This leaves importers like India more vulnerable after recording substantial purchases throughout the month. (asd)*
Source: Newsmaker.id
