WTI drops below $64.00, Middle East tensions in focus
- WTI price slumps to near $63.80 in Tuesday’s early Asian session.
- Traders will closely monitor the developments surrounding tensions between the US and Iran.
- The US advised ships to avoid Iran.
West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $63.80 during the early Asian trading hours on Tuesday. The WTI price falls as concerns about supply disruptions in the Middle East have faded. Traders brace for the release of the American Petroleum Institute (API) weekly report, which will be released later on Tuesday.
An increase in crude exports from Venezuela could boost global oil supplies and weigh on the WTI price. Reuters reported last Monday that Venezuelan crude exports climbed to 800,000 barrels per day (bpd) in January from 498,000 bpd in December.
The black gold loses momentum after the United States (US) and Iran pledged to continue indirect talks following what they described as positive discussions. Iran’s President Masoud Pezeshkian described the Friday nuclear talks with the US as “a step forward,” even as he pushed back against any attempts at intimidation.
However, an escalation of geopolitical risk in the Middle East could add a risk premium to crude oil, supporting the WTI price. The US Department of Transportation on Monday issued a maritime advisory stating that American-flagged ships should stay as far as possible from Iranian waters when navigating the Strait of Hormuz, per Reuters. The Iranian foreign minister said that the country will strike US bases in the Middle East if it is attacked by US forces.
“The Iranian risk premium cannot be fully defused as long as U.S. warships are located where they are,” said SEB analyst Bjarne Schieldrop.
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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