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US Oil Update: Crude Drops Amid US-Iran Impasse, Market Eyes Trump-Xi Meeting

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Crude oil futures retreated in after-hours trading on Wednesday, paring earlier gains, as markets assess a prolonged standoff between the US and Iran, with focus now shifting toward a high-stakes meeting between President Trump and Chinese President Xi Jinping.

Front-month West Texas Intermediate crude futures dropped by 1.15% to $101 per barrel, while Brent futures fell by 1.92% to $105.70/bbl.

US crude inventories fell by 4.3 million barrels to 452.9 mmbbls in the week ended May 8, the Energy Information Administration said in its weekly report on Wednesday. The agency said the stockpiles are now about 0.3% above the five-year average for this time of year.

Trump arrived in China on Wednesday after downplaying the attention the ongoing conflict would receive during his summit with President Xi, saying that "we have Iran very much under control," according to media reports.

The US President reportedly plans to prioritize trade negotiations during the meeting with the two leaders. China is reportedly the biggest buyer of Iranian oil despite sanctions pressure from the Trump administration.

However, despite the retreat on Wednesday, the broader outlook remained bullish. The International Energy Agency said on Wednesday that global observed oil inventories dropped by 250 million barrels in March and April, or at a rate of about 4 million barrels per day.

"With global oil inventories already drawing at a record clip, further price volatility appears likely ahead of the peak summer demand period," the IEA said in its Oil Market Report.

The agency projected that the market will remain "severely undersupplied" until October, even if the Middle East conflict ends next month.

OPEC on Wednesday said that crude production among member states fell further in April and is down more than 30% since the onset of the conflict in late February.

The group's production fell by 1.7 million b/d in April after output plunged by 7.9 million b/d in March. Production among OPEC countries dropped by more than 30%, or 9.7 million b/d, during the conflict.

Meanwhile, the effective closure of the Hormuz has significantly disrupted global supplies of crude, natural gas and fuels, stoking fears of reignited inflation.

Vietnam's state oil firm reportedly urged the US to let a supertanker laden with crude pass through its naval blockade outside the Persian Gulf, saying the shipment is vital to its economy. The vessel crossed Hormuz but reversed course on Monday near the US blockade.

The US Central Command said on Wednesday it has redirected 67 commercial vessels as part of a blockade targeting ships entering and exiting Iranian ports.

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