WTI bears seem hesitant near $88.00 as Hormuz risks counter Iran diplomacy hopes
- WTI trades with a negative bias for the third straight day, though it lacks follow-through.
- Hopes for easing US-Iran tensions turn out to be a key factor weighing on the commodity.
- Hormuz risks hold back bearish traders from placing aggressive bets and help limit losses.
West Texas Intermediate (WTI) – the benchmark US Crude Oil price – struggles to capitalize on the previous day's goodish rebound from sub-$85.00 levels, or over a three-week low, and remains depressed for the third straight day on Thursday. The commodity trades just below the $88.00 mark during the Asian session, down around 0.40% for the day, amid hopes of a prolonged US-Iran ceasefire.
US President Donald Trump said that he believes the war with Iran may be coming to a conclusion soon, while the White House expressed optimism about reaching a deal to end the conflict. Furthermore, reports suggest that there are growing prospects for a second round of peace talks between the US and Iran that could take place in a matter of days. The optimism, in turn, is seen as a key factor that continues to undermine Crude Oil prices.
Meanwhile, Iran has demanded an end to Israeli attacks on Lebanon as a precondition for further negotiations with the US. The Israeli Prime Minister, Benjamin Netanyahu, indicated that he had not committed to a ceasefire and said that he had given instructions to the IDF to continue thickening the security zone. This, along with the instability in the Strait of Hormuz, acts as a tailwind for Crude Oil prices and limits the downside.
The US naval blockade of Iranian ports, imposed after the end of the Islamabad talks last Saturday, had been fully implemented. The leader of Iran’s joint military command said on Wednesday that its military could halt trade in the Gulf region if the US did not lift its blockade on Iranian ports. This raises the risk of global supply disruptions and, in turn, is holding back bearish traders from placing aggressive bets on Crude Oil prices.
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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