WTI Oil returns to levels above $74.50 as Middle East tensions remain high
- Oil prices remain steady at high levels, supported by Middle East tensions.
- The market is fearing a war escalation that would disrupt global supply and boost Crude prices.
- Iran is also considering blocking the key Strait of Hormuz, which would boost the price of Oil.
Crude Oil retreated from five-month highs at the $7750 area in the early Asian session, but downside attempts have been capped right above $73.00. Price action has returned above $74.50 during the European morning, as the risks of a severe oil supply stemming from the Middle East conflict remain high.
Iranian officials have threatened to block the Strait of Hormuz, a gateway for about a fifth of the world’s Oil supply, which might boost prices to $120-$130 per barrel, according to market sources.
Tehran has also threatened with severe consequences and proposed a bill to halt its collaboration with the International Atomic Energy Agency (IAEA). The world holds its breath to avoid a large-scale conflict in an already volatile region, and, in this context, the only way is up for Crude prices.
The US pounded several key nuclear facilities in Iran. Trump affirmed that the mission was a success in what he presented as a one-off action, but Israel's Prime Minister, Benjamin Netanyahu, said that the nuclear risk has not been eliminated, as the crucial Fordow underground plant was not damaged.
All in all, the Price of the US benchmark WTI remains buoyed, after having rallied nearly 20% from the late-May range: Downside attempts remain limited, and the year-to-date high, at $79.60, is coming into focus.
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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