West Texas Intermediate (WTI) – the benchmark US Crude Oil price – extends its consolidative price move through the first half of the European session and currently trades near the $84.25-$84.30 area, close to a two-week high set earlier this Tuesday. The fundamental backdrop, meanwhile, seems tilted in favor of bulls and backs the case for a further near-term appreciating move.
The uncertainty stemming from the US-Iran standoff over the Strait of Hormuz keeps the geopolitical risk premium in play and continues to act as a tailwind for the black liquid. In fact, President Trump told reporters on Monday that the US had total control over the strategic waterway, referring to an ongoing naval blockade of Iranian ports that Washington has threatened to carry on indefinitely.
Trump repeated his idea of declaring the strait as a US territory and threatened to bomb Oman if it gets in the way of reopening the waterway. Iran, on the other hand, has also claimed that Hormuz is under its control and demanded that the US agree to Tehran’s conditions for shipping to resume through the waterway. Moreover, disruption in traffic through the Red Sea supports oil prices.
Rabobank’s Energy Markets team notes that price action has remained highly sensitive to shifting headlines around the Hormuz crisis. They point out that “since the end of June’s MoU, Brent crude has swung between roughly $72- 102/bbl, following every rumor of a peace deal or renewed escalation,” underscoring the market’s ongoing vulnerability to geopolitical news flow.
Iran-backed Houthi rebels in Yemen have stepped up attacks near the Bab al-Mandeb Strait and claimed that they had launched a ballistic missile attack on a Saudi military landing ship. This raises the risk of a broader regional conflict and adds to supply concerns, validating the near-term positive outlook for crude oil prices. Hence, any corrective pullback is more likely to be bought into.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
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