WTI holds above $74.00, close to two-week top as bears hesitate on US-Iran/Hormuz risks
- WTI attracts some sellers following a strong two-day rally, though the downside seems limited.
- Traders price in geopolitical risk premium amid escalation of tensions between the US and Iran.
- Concerns about supply distributions in the Strait of Hormuz also lend support to the commodity.
West Texas Intermediate (WTI) – the benchmark US Crude Oil price – drifts lower during the Asian session on Thursday and moves away from a two-week high, around the $75.75 region touched the previous day. The commodity currently trades above the $74.00 mark, down 0.30% for the day, though the downside potential seems limited amid a fresh escalation of tensions between the US and Iran.
The US military unleashed a new wave of strikes against Iran in retaliation for Tehran’s attacks on commercial ships in the highly contested Strait of Hormuz. Iran retaliated by targeting approximately 85 US military installations and assets across Bahrain and Kuwait. Adding to this, US President Donald Trump said on Wednesday that the memorandum of understanding with Iran aimed at ending the conflict in the Middle East is now over. Traders were quick to price in the geopolitical risk premium, which, in turn, triggered a sharp two-day rally in Crude Oil prices.
The US also moved to withdraw a key concession that allowed Iran to sell oil on international markets. Furthermore, an informed security source told Iran's Press TV that Tehran is set to close the Strait of Hormuz again in response to the latest US strikes on the Islamic Republic. The source added that Iran has vowed to attack two targets for every one target America hits against its territory. This revives supply disruption worries, offsetting the OPEC+ decision of another production target increase and turning out to be another factor supporting Crude Oil prices.
Meanwhile, the US Energy Information Administration (EIA) reported a larger-than-expected build in inventories for the week ending July 3, marking the first rise in 11 weeks. According to the latest data, commercial Crude Oil stocks rose by 2.998 million barrels, significantly overshooting analyst forecasts. The markets, however, reacted little to the report as the focus remains glued to developments surrounding the Middle East conflict and the strategic Strait of Hormuz.
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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