Oil Prices Surge as Trump Xi Talks Fail to Ease Strait of Hormuz Crisis

Oil prices jumped on Friday after US President Donald Trump and Chinese President Xi Jinping failed to reach any meaningful agreement on increasing energy flows through the Strait of Hormuz. West Texas Intermediate crude rose 4% to settle above $105 a barrel. Brent crude, the global benchmark, settled above $109 a barrel.

Trump said he did not push Xi to pressure Iran to reopen the strait. This dashed hopes of a diplomatic breakthrough. China is the largest buyer of Iranian crude. Traders now fear that disruptions to global oil supplies will deepen.

“The lack of concrete takeaways from the Xi Trump meeting, especially on pressuring Iran, is driving the market,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. “We are getting mixed signals as usual, and the market is trying to make sense of it.”

The disappointment adds to a week of worrying headlines. Traders remain on edge over a possible return to hostilities between the US and Iran. A fragile ceasefire has done little to calm nerves. Reports of a ship seizure near the waterway have also caused flows through the strait to slow again.

Physical crude markets have firmed in recent days. This is a reminder of the severe supply tightness hitting the global oil industry. The nearly 11 week conflict has drained global oil inventories at a record pace. The International Energy Agency warned this week that the market will remain “severely undersupplied” until October, even if the war ends next month.

“The continued closure of the Strait of Hormuz due to the Middle East war has intensified energy disruptions,” said Bart Melek, global head of commodity strategy at TD Securities. “If crude flows do not resume, the energy system could face a critical breakdown. That could send crude into the $150 range.”

WTI finished the week up more than 10%. Brent finished the week up 8%. Brent has now settled above $100 a barrel for four straight weeks. On Friday, bond markets also sold off sharply as fears grew that oil flows will not normalise quickly. This sparked inflation worries.

The US Iran ceasefire has been in place since early April despite several flare ups. Trump recently said the truce was on “massive life support”. He criticised Iran’s response to his proposal to end the war. Both countries are still blocking traffic through the waterway.

“Unless we see China pressuring Iran, and it looks like they are not engaging, the US and Israel will likely tighten measures further,” said Dennis Kissler, senior vice president at BOK Financial Securities Inc. “That is a near term positive for crude prices.”

Only a trickle of tankers have left the Persian Gulf since the conflict began. This has cut off vital supplies of oil and natural gas to global customers. The longer term impact is also becoming clear. On Friday, the United Arab Emirates said it will complete a pipeline bypassing the Strait of Hormuz by next year. This will double its export capacity outside the waterway.