WTI extends losses as recovering Hormuz flows, OPEC+ supply outlook weigh
- WTI falls to pre-US-Iran war levels as easing Middle East supply concerns weigh on prices.
- EIA reports a tenth straight weekly decline in US crude inventories, but the draw misses expectations.
- OPEC+ is expected to approve another output increase at Sunday's meeting.
West Texas Intermediate (WTI) crude Oil remains under pressure on Wednesday as improving crude flows through the Strait of Hormuz push prices back to levels seen before the US-Iran war, overshadowing the latest US inventory data. At the time of writing, WTI trades around $68.13 per barrel, down nearly 2.60% on the day.
The US Energy Information Administration (EIA) reported that commercial crude Oil inventories fell by 3.775 million barrels in the week ended June 26, marking a tenth consecutive weekly draw. However, the decline was smaller than market expectations for a 5.1 million-barrel draw and followed a 6.088 million-barrel decline in the previous week. US crude stockpiles also fell to their lowest level since September 2018.
Oil has shed much of its geopolitical risk premium as tanker traffic through the Strait of Hormuz continues to recover following last month's interim US-Iran peace agreement. However, the two sides have yet to finalize a permanent deal, with differences remaining over inspections of Iran's nuclear program and the future management of the Strait of Hormuz.
Tehran insists the strategic waterway falls under its sovereignty and wants to impose transit tolls on commercial vessels, while the United States says the waterway should stay open for free commercial shipping.
Adding to the bearish outlook, Reuters reported on Wednesday that the Organization of the Petroleum Exporting Countries and its allies (OPEC+) are expected to approve another production increase when the group meets on Sunday.
According to three sources, the alliance is likely to raise its output target by around 188,000 barrels per day in August, matching the increases announced for June and July.
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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