Trump and Xi Meet This Week as Oil Markets Hang in the Balance

The Iran war has strained U.S.-Chinese ties further and looks set to dominate the May 14 to 15 summit between U.S. President Donald Trump and his Chinese counterpart and host Xi Jinping in Beijing.

Trump and Xi are set to enter talks with a sprawling agenda spanning trade, Taiwan, the Iran war and more.

But energy is the centerpiece. The president will be seeking PRC support for his efforts to secure an acceptable agreement from Iran to end the conflict and reopen the Strait of Hormuz.

Around half of China's crude oil imports are shipped from the Middle East, where the closure of the Strait of Hormuz and U.S. blockade have left ships stranded inside the Gulf and vulnerable to attacks.

The stakes couldn't be higher. The conflict slashed China's total crude oil imports in April by 20% from a year ago to the lowest level in almost four years, according to Chinese customs data.

Southeast Asian nations, heavily reliant on Gulf oil, have borne the brunt of the energy shock triggered by the Middle East conflict. Singapore officials have repeatedly warned of the economic toll, while calling for free passage through the Strait.

OPEC Production Collapses to Lowest Level Since 2000

The supply disruption is unprecedented. OPEC oil output has declined to its lowest level since 2000, with production falling by 830,000 barrels per day (bpd) to an average of 20.04 million bpd in April, according to a Reuters survey published Monday.

Kuwait recorded the largest production drop, with reports indicating it exported zero crude in April thanks to its total reliance on the Strait of Hormuz. Saudi Arabia and Iraq also saw significant output decreases as they were forced to shut-in production.

Saudi production dropped towards 7 million barrels per day (bpd) following attacks on energy infrastructure, including a 600,000 bpd capacity loss from damaged facilities.

According to market data, WTI crude traded at $71.50 per barrel on Sunday, up 0.6%, while Brent crude stood at $75.20 per barrel, up 0.5%. But those figures mask the extreme volatility that's been roiling markets for weeks. Earlier reports showed oil prices spiking above $100 per barrel during peak crisis moments in March and April.

Diesel Prices Hit Record Highs Across America

While crude prices have moderated from their peaks, diesel is a different story. Diesel now averaging about $5.65 a gallon nationally, according to Patrick De Haan, head of petroleum analysis at GasBuddy. "That is only about 20 cents away from a new all-time record high."

Michigan has now set a new all-time record high for diesel over $6. Indiana is just a few tenths of a penny away from setting a new all-time record. Illinois has set a new all-time record.

No states any longer have diesel averaging below $5 a gallon. Texas was the last holdout, and it now is above $5 per gallon.

The U.S.' national average for a gallon of on-highway diesel increased by 28.9 cents during the week ending May 4 to $5.64, just three-tenths of a cent lower than the 2026 high observed during the week ending April 6, based on U.S. Energy Information Administration data.

The pain extends beyond the pump. MarketWatch reported that diesel is what powers the trucks, trains and tractors that keep the U.S. economy running, meaning higher costs will ripple through supply chains and eventually hit household budgets.

European Oil Majors Cash In on Volatility

While consumers suffer, some companies are thriving. The European oil majors with the biggest trading desks raised their trading profits by up to $4.75 billion in the first quarter from the end of last year, amid extreme market volatility driven by the war in Iran. The biggest European majors, BP, Shell, and TotalEnergies, likely earned between $3.3 billion and $4.75 billion more in the first quarter compared to the fourth quarter of 2025, the Financial Times reports, citing estimates from analysts.

BP's profits more than doubled to $3.2bn (£2.4bn) for the first three months of the year, after what it called an "exceptional" performance in its trading division. Shell also beat analysts' expectations when it reported a rise in first-quarter profits to $6.92bn.

TotalEnergies, for its part, raised its interim dividend by 6% as first-quarter earnings jumped by 30% from a year earlier, pushed up by the spike in oil prices and very strong oil trading results in the wake of the Iran war.

Although US oil majors Chevron and ExxonMobil are yet to cash in on the windfall from higher prices thanks to stalled deliveries and supply disruptions in the region, European majors like bp and TotalEnergies are already enjoying a boon from higher prices thanks to their substantial trading operations, which allows them to monetize market volatility.

Asia Turns Back to Coal as Gas Supplies Dry Up

The gas market is equally strained. According to market data, Henry Hub natural gas traded at $3.25 per MMBtu on Sunday, down 2.4%. But the real story is happening overseas, where the Financial Times reported that coal shipments are jumping as countries seek alternatives to disrupted gas supplies, with the Middle East conflict driving many Asian nations in particular to turn to the fossil fuel.

In the wake of the worst oil and gas supply disruption in history, coal is back in demand, so much so that even countries and regions that believed coal use was in an irreversible terminal decline have boosted imports. For example, last month coal shipments to South Korea, Japan, and the European Union surged by 27% from a year earlier, data from BIMCO, the world's biggest shipowners' association, said last week.

The war has countries shifting back to coal to cover LNG shortfalls. India is burning more coal to meet higher summer demand. South Korea has lifted caps on electricity from coal. Indonesia is prioritizing using its domestic supply. Thailand, the Philippines and Vietnam are boosting coal-fired power.

What Happens Next

Xi is not walking into next week's summit as a supplicant asking for tariff relief. He is walking in as the leader of a country that has something Trump badly needs, at a moment when that need is most acute.

Should Trump and Xi reach an agreement on a joint effort to reopen the strait, that could offer near-term relief to the energy crunch — though some analysts say such an outcome remains a long shot.

China has some leverage with Iran but will want something from the US in return, if it is to use it.

The summit begins Wednesday, and energy markets will be watching every development. For now, diesel keeps climbing, OPEC production keeps falling, and the world's two largest economies are about to sit down and try to find a way out of what the International Energy Agency has called the largest supply disruption in the history of the global oil market.