WTI Oil extends gains beyond $84.00 as US resumes strikes in Iran
- WTI Oil appreciates to levels above $84.00 after bouncing off the $77.16 lows earlier this week.
- Crude prices have rallied about 7% since the US and Iran resumed hostilities on Wednesday.
- EIA reported a larger-than-expected draw in Oil reserves, increasing concerns about a Crude shortage.
Oil prices have risen about 7% over the last two days, pushing the price of the US benchmark West Texas Intermediate (WTI) barrel to levels above $84.00 on Thursday, up from the $77.16 lows seen earlier in the week. The resumption of hostilities in the Middle East and a serious threat that the war might spill over the region are adding a risk premium to Crude prices.
The US military announced a new round of strikes on Iran on Wednesday, which would end a three-day truce, and crush investors’ hopes of a negotiated outcome that had allowed for a $12 drop in Oil prices.
These strikes follow comments by US President Donald Trump vowing retaliation after a US-owned gas storage tanker was hit by a drone while anchored at Egypt's port of Damietta. Before that, Iran had fired missiles at a US military base in Jordan, and the US and Saudi Arabilia launched a coordinated attack on Iran-backed Shiite militias in Iraq.
US Oil reserves decline beyond expectations
Meanwhile, global Oil reserves keep depleting, with the key Strait of Hormuz crossed. Data from the US Energy Information Administration (EIA) released on Wednesday revealed that US commercial Oil inventories declined by 7.167 million barrels in the week ending July 24, well beyond the 2.5 million draw expected by the market, and largely offsetting the 2.01 million barrels buildup seen in the previous week. These figures add concerns of an Oil shortage and contribute to pushing prices higher.
According to TD Securities, the “return of Iranian-US strikes after a multi-day pause, along with continued Houthi risks for Saudi energy infrastructure, are keeping flows in both the Strait of Hormuz and Bab el-Mandeb heavily constrained.” Strategists argue that markets have given up on hopes of renewed peace, considering Iran's insistence on controlling the Strait and see ongoing disruptions leading to “reduced flows and global tightening of the energy market as supportive of further upside in crude oil.”
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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