WTI Oil surges 7% as Middle East war and supply risks fuel rally
- WTI Oil surges nearly 7% as the war in the Middle East intensifies.
- A larger-than-expected decline in US crude inventories provides additional support to Oil prices.
- Supply disruption risks spread from the Strait of Hormuz to the Bab el-Mandeb Strait.
West Texas Intermediate (WTI) Oil jumps nearly 7% on Wednesday as the war in the Middle East keeps geopolitical risks firmly priced into the market. At the time of writing, WTI trades around $84 per barrel, snapping a three-day losing streak.
The sharp rebound comes after Iran’s Islamic Revolutionary Guard Corps (IRGC) launched missiles at a US military base in Jordan, ending a brief pause in the fighting.
Meanwhile, data from the US Energy Information Administration (EIA) showed that crude Oil inventories fell by 7.167 million barrels last week, much more than the expected 2.5 million-barrel decline. This followed a 2.011 million-barrel build in the previous week.
US President Donald Trump later threatened retaliatory strikes against Iran. Washington also announced new sanctions targeting eight tankers and ten entities connected to Iranian Oil shipments.
Meanwhile, Iran rejected Oman’s proposal to jointly manage shipping through the Strait of Hormuz, while the IRGC claimed that it struck and halted three Oil tankers in the waterway after they ignored warnings.
The latest developments dampened hopes that shipping through the Strait of Hormuz would normalise anytime soon. Supply risks are also spreading to the Red Sea. Reuters reported that Yemen’s Iran-aligned Houthis are considering charging commercial ships using the Bab el-Mandeb Strait.
With two major energy routes facing disruption and fresh military action raising fears of a broader conflict, Oil prices are expected to remain volatile, with further upside likely.
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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