WTI rallies as Trump signals continued military action against Iran
- WTI Crude Oil surges more than 8% on Thursday, rebounding after a two-day decline.
- Middle East tensions keep supply disruptions through the Strait of Hormuz in focus.
- OPEC+ meeting eyed for potential output increase on Sunday.
West Texas Intermediate (WTI) Crude Oil rebounds sharply on Thursday, rising more than 8% on the day, as ongoing tensions in the Middle East continue to keep a geopolitical risk premium embedded in prices amid supply disruptions through the Strait of Hormuz.
At the time of writing, WTI is trading around $103, bouncing off a daily low of $92.49 and snapping a two-day losing streak.
The rebound comes after Donald Trump dashed hopes of a near-term end to the US-Iran war in his address to the nation, signaling continued military action in the coming weeks. His comments reinforced expectations of prolonged disruptions to energy flows through the Strait of Hormuz.
Markets had briefly priced in some easing of tensions earlier this week following reports of possible negotiations, which led traders to believe the war could end soon, but the latest rhetoric has shifted sentiment back toward supply risks.
However, some positive signs have also emerged. According to Tasnim, Iranian Deputy Foreign Minister Kazem Gharibabadi, in an interview with Sputnik, said Iran and Oman are working on a joint plan to ensure safe shipping through the Strait of Hormuz after the war. Gharibabadi added that the protocol is intended not as a restriction, but as a mechanism to facilitate safe transit and provide better services to vessels.
Meanwhile, the UK is also set to convene virtual talks later on Thursday with around 35 countries to discuss a plan to restore shipping through the Strait.
Attention is also turning to the OPEC+ meeting on Sunday. According to Reuters, OPEC+ is likely to weigh a further Oil output increase when eight of its members meet, a move that would position key producers to add more barrels should the Strait of Hormuz reopen.
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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