WTI Oil holds below $75.00 despite the deteriorating Middle East conflict
- WTI Oil has jumped from Friday's highs, but remains contained below $75.00 so far.
- Tensions in the Middle East escalated last week, but the market is not pricing an all-out war yet.
- On Friday, the EIA reported an increase in US commercial Oil reserves, which added pressure on Crude prices.
Speculative traders seem reluctant to jump on the Crude Oil rally despite the escalating tensions in the Middle East and the closure of the Strait of Hormuz. The US benchmark West Texas Intermediate (WTI) has bounced from Friday’s levels, near $71.00, but has been unable to extend beyond last week’s highs at $75.73 so far.
The price of the WTI barrel gapped up at Monday’s opening times, but it has remained capped below the $75.00 level, and has eased below the $74.00 level on the early European session opening.
The US and Iran ramped up their reciprocal attacks over the weekend, but investors seem reluctant to price in the resumption of an all-out war that would boost prices to levels close to the highs seen in April and May, when the WTI barrel reached prices well above $100.00.
An Iranian Foreign Ministry spokesperson affirmed on Monday that Tehran is seeking to establish a joint mechanism with Oman regarding the status of the Strait of Hormuz, but that US pressure on Oman is hindering efforts. Meanwhile, traffic through the waterway sank to its lowest level in weeks, despite US claims that some vessels have been escorted through the strait.
On Friday, the weekly Oil Inventory report from the US Energy Information Administration (EIA) showed a 3 million-barrel increase in commercial US Crude Oil inventories in the first week of July. These figures eased concerns about an Oil shortage and helped contain Oil prices’ recovery.
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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