WTI pulls back below $100 as Saudi Arabia steps up efforts to restore Oil flows
- WTI falls as Saudi Arabia works to restore flows through its damaged East-West pipeline.
- The pipeline provides a crucial export route that bypasses the Strait of Hormuz.
- A smaller-than-expected decline in US crude inventories adds to the pressure on Oil prices.
West Texas Intermediate (WTI) Oil falls on Wednesday as Saudi Arabia steps up efforts to restore flows through its East-West pipeline, which was damaged by a drone attack last week. The prospect of a partial restart eases some supply concerns in a market already strained by disruptions across the Middle East.
At the time of writing, WTI trades around $97.90 per barrel, down nearly 3% on the day after failing to sustain gains above the $100 mark.
Bloomberg reported, citing people familiar with the matter, that Saudi Aramco is working to bypass the damaged section and bring about half of the pipeline’s capacity back online within days. The company aims to restore full operations in around six weeks. The development follows an earlier Reuters report that Saudi Arabia is increasing crude shipments to Asian refiners through ship-to-ship transfers near Oman’s Sohar port.
The East-West pipeline is especially important because it offers an alternative to the Strait of Hormuz. The 1,200-kilometre route carries crude from eastern Saudi Arabia to the Red Sea port of Yanbu and can transport up to 7 million barrels per day. This allows the kingdom to ship Oil without passing through Hormuz, where vessel traffic has been heavily restricted since the war with Iran began.
According to preliminary shipping data cited by Reuters, only four vessels passed through the Strait of Hormuz on Tuesday, down from seven on Monday and well below the ten-day average of 18.
WTI faces additional pressure from the latest US inventory data. The US Energy Information Administration (EIA) reported that commercial crude inventories fell by 640,000 barrels in the week ending September 11, after declining by 391,000 barrels the previous week. However, the latest draw was smaller than market expectations for a 1.6 million-barrel decline.
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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