Key Takeaways

• Modest retreat: Brent crude fell 0.5% to $107.26 per barrel, while WTI slipped 0.7% to $101.44.
• Three-day rally fades: Both contracts had jumped more than 3% Tuesday, but remain well above pre-war levels of around $70.
• Ceasefire on “life support”: Trump’s stark warning continues to weigh on sentiment after Tehran rejected the U.S. peace plan.
• Hormuz to stay shut: The EIA expects the strategic strait to remain largely closed through late May.
• Steeper drawdown: Global stockpiles could shrink by 2.6 million barrels per day this year, per EIA projections.
• Brent forecast: The agency sees Brent averaging around $106 per barrel in May and June.
• Aramco bombshell: CEO Amin Nasser warned the oil market may not fully recover until 2027 due to prolonged Hormuz disruptions.
• Saudi workaround: The kingdom has ramped up use of its East-West pipeline to bypass the strait, though analysts say it can’t fully compensate.
• Trump-Xi summit: China — as Iran’s major crude buyer — could potentially act as guarantor of a peace deal.
• Tempered hopes: Some observers have dialed back expectations for a major breakthrough from the gathering.
• Morgan Stanley’s view: “The resolution of the Middle East conflict is central to all commodities.”
• U.S. inventory drop: API data showed crude stocks fell 2.188 million barrels last week — the fourth straight weekly decline.
• CPI shock and PPI ahead: Hot inflation data is fueling Fed rate hike expectations.

Oil prices eased on Wednesday, retreating after climbing over the previous three sessions, as traders assessed the ongoing disruption to shipping through the Strait of Hormuz and kept tabs on President Donald Trump’s high-stakes trip to China.

As of 05:31 ET (09:31 GMT), Brent crude futures expiring in July — the global benchmark — had fallen 0.5% to $107.26 per barrel, while U.S. West Texas Intermediate (WTI) crude futures slipped 0.7% to $101.44 per barrel.

Both contracts had jumped more than 3% in the previous session, and remain well above pre-war levels of around $70 a barrel. Markets have been on edge this week after Trump described the ceasefire with Iran as being on “life support” and rejected Tehran’s latest response to a U.S.-backed peace plan.

The Strait of Hormuz, through which roughly a fifth of global oil consumption normally flows, remains largely shut to commercial traffic after Iran tightened restrictions following the outbreak of war earlier this year.

The U.S. Energy Information Administration said on Tuesday it now expects the strait to stay all but closed through late May, forcing a much steeper drawdown in global inventories than previously forecast. The agency estimated that global stockpiles could shrink by 2.6 million barrels per day this year, while Brent prices may average about $106 per barrel in May and June.

Trump-Xi Talks Ahead

Markets were also tracking Trump’s scheduled summit with counterpart Xi Jinping in China, where discussions are expected to cover a broad range of topics, including trade tensions and Taiwan.

But it may be the ongoing fight between the United States and Iran that will likely command much of the attention. Analysts have suggested that China — as a major importer of Iranian crude — could be persuaded to act as a guarantor of a lasting peace deal, although some observers have dialed back expectations that such a breakthrough could come from the gathering.

Diplomatic efforts to forge an agreement between Washington and Tehran appear to have stalled. Earlier this week, Trump dismissed an Iranian response to an American peace proposal, describing it as “unacceptable” and a “piece of garbage.” Reports have also swirled around whether the White House will resume strikes against Iran.

In a research note, analysts at Morgan Stanley argued that “[t]he resolution of the Middle East conflict is central to all commodities,” including oil.

Aramco Warns of 2027 Recovery

Saudi Aramco CEO Amin Nasser has warned that the oil market may not fully recover until 2027 due to prolonged disruptions linked to the Strait of Hormuz. Saudi Arabia has increased the use of its East-West pipeline to bypass the strait, though analysts say alternative routes cannot fully compensate for blocked Gulf exports.

Inventory Data and Inflation in Focus

Meanwhile, data from the American Petroleum Institute released late Tuesday showed crude stocks fell by 2.188 million barrels in the week ended May 8, marking the fourth consecutive weekly decline.

Traders were also digesting the U.S. consumer price index report, which showed that inflation was firm in April — potentially fueling expectations that the Federal Reserve will hike interest rates to help rein in price gains. U.S. producer price index data due on Wednesday may provide further insight into underlying price pressures and the Fed’s next steps.

Higher-for-longer U.S. borrowing costs could weigh on fuel demand globally, partially offsetting the supply-driven price gains.