WTI climbs above $74.50 as US strikes on Iran raise fears of supply disruption
- WTI price jumps to near $74.80 in Monday’s Asian session.
- Concerns that energy supplies from the Middle East could be disrupted boost the WTI price.
- The expectation of lower demand might cap the upside for the WTI.
West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $74.80 during the Asian trading hours on Monday. The WTI price has climbed to the highest level since January after the United States (US) launched direct attacks against Iran, raising fears of potential disruptions to energy supplies from the Middle East, particularly through the Strait of Hormuz.
The WTI price jumps after the US entered the conflict between Israel and Iran over the weekend, with American warplanes and submarines targeting three Iranian facilities in Iran, Fordo, Natanz and Isfahan. Additionally, Iran’s parliament has voted to shut down the Strait of Hormuz in retaliation against Trump’s attack on the country.
A fifth of the world's oil consumption passes through the Strait of Hormuz, a gateway out of the Persian Gulf. JP Morgan analysts forecast that the oil price might increase to $130 if a prolonged Middle East war blocks the Strait of Hormuz.
Oil traders will closely monitor how Iran will respond to the US strikes. Iran’s foreign minister said on Sunday that the Islamic Republic reserves “all options” to defend its sovereignty. The concerns that energy supplies from the Middle East could be disrupted might weigh on the black gold in the near term.
On the other hand, the estimation of lower demand might cap the upside for the WTI. In its monthly oil report last week, the International Energy Agency (EIA) revised its world oil demand estimate downwards by 20,000 barrels per day from last month's forecast and increased the supply estimate by 200,000 bpd to 1.8 million bpd.
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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