WTI plummets below $100 as Trump calls for truce without Hormuz reopening
- The oil price faces intense selling pressure as US President Trump calls aides that he is willing to end the war with Iran.
- Trump is ready for a truce without the reopening of strait of Hormuz.
- Global energy supply is expected to remain limited due to damage to energy infrastructure.
West Texas Intermediate (WTI), futures on NYMEX, plunges over 3% to near $98.00 during the Asian trading session on Tuesday. The oil price faces intense selling pressure as a report from the Wall Street Journal (WSJ) has shown that United States (US) President Donald Trump is willing to end the war with Iran without the reopening of the Strait of Hormuz, the passage to 20% of global energy supply.
As per the report, US President Trump told aides he is willing to end the US military campaign against Iran even if the Strait of Hormuz remains largely closed. The report also stated that administration officials assessed that forcing the waterway back open would mean extending the military mission beyond his timeline of four to six weeks.
An end to the month-long war would ease global energy supply concerns and anchor inflation expectations again. However, the impact is expected to be limited for a while, as the damage to energy infrastructure across the Gulf region in the wake of military activities by all three nations, Israel, Iran, and the US, would take months to return to the restoration state, a scenario that will keep global supply limited.
US President Trump’s call for a truce with Iran has resulted in a sharp improvement in investors’ risk appetite. Meanwhile, the US Dollar (USD) has also come slightly under pressure, with the US Dollar Index (DXY), ticking lower to near 100.40.
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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