Crude oil futures advanced in midday trading on Thursday after the White House said President Trump and Chinese President Xi Jinping agreed that the Strait of Hormuz must remain open, as allowed passage via the key chokepoint to select vessels.
Front-month West Texas Intermediate crude futures rose by 0.92% to $101.88 per barrel, while Brent futures gained 0.36% to $106.06/bbl.
US crude inventories fell by 4.3 million barrels to 452.9 million barrels 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.
"The draw is driven by continued strength in crude oil exports, which grew by 742k b/d week-on-week," ING strategists said in a note on Thursday.
On Thursday, Trump met China's President Xi Jinping in Beijing, and the two leaders' discussions included the ongoing Iran conflict and increased oil ties between the world's two biggest economies.
The US President said President Xi had offered China's help to open the Hormuz and expressed interest in buying American oil to reduce Beijing's dependence on the strategic waterway in the future.
US Treasury Secretary Scott Bessent also said China will use its influence in Iran to help reopen the strategic waterway, according to media reports. China is the biggest buyer of Iranian oil despite pressure from the Trump administration.
"Oil prices established as US President Trump and Chinese President Xi began high-level talks in Beijing, while the Iran war and the near closure of the Strait of Hormuz continued to disrupt global energy markets," said Soojin Kim, research analyst at MUFG.
Iran began allowing some Chinese vessels to transit through the Hormuz on Thursday following an agreement on Tehran's management protocols for the waterway. Iran's National Security and Foreign Policy Commission has reportedly finalized a comprehensive plan for the security and development of the Persian Gulf and the Strait.
Meanwhile, the United Kingdom Maritime Trade Operations Center says it received a report of a vessel being "taken by unauthorized personnel" near the UAE emirate of Fujairah. UKMTO said the ship was taken 38 nautical miles off the UAE in the Gulf of Oman, where it was anchored.
On Thursday, the US Central Command also said it had redirected 70 commercial vessels as part of a blockade targeting ships entering and exiting Iranian ports.
The ongoing Middle East conflict 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, the International Energy Agency said in its monthly report on Wednesday.
"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 IEA said 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, as demand is now expected to contract by 2.4 million b/d year-over-year in Q2 and 420,000 b/d for the entire year.
Market participants are closely monitoring the expiry of a US sanctions waiver allowing purchases of Russian oil cargoes, which could further tighten global supply conditions.