WTI pares half of early losses, recovers to near $96 as oil supply risks remain intact
- The oil price recovers half of its early losses amid fears of a prolonged energy supply crisis.
- IEA’s Birol said that the Middle East war has resulted in the damage of some 40 key energy assets.
- UAE expresses readiness to support forceful reopening of the Strait of Hormuz.
West Texas Intermediate (WTI), futures on NYMEX, claws back half of its early losses during the European trading session on Wednesday. Still, the oil price is down 1.5% to near $96.00.
Earlier in the day, the oil price faced intense selling pressure as comments from Iran’s President Masoud Pezeshkian that his country is ready to end the war with the United States (US) prompted hopes of a ceasefire in the Middle East war.
"We possess the necessary will to end this conflict, provided that essential conditions are met, especially the guarantees required to prevent repetition of the aggression," Iranian President Pezeshkian said in a telephonic conversation with European Union (EU) Council President António Costa on Tuesday, according to Euronews.
However, the downside in the oil price appears to be limited, as various global leaders have warned that the ongoing energy crisis would persist longer, with the Strait of Hormuz, a passage to almost 20% of the global energy supply, remaining closed under Iran’s seizure.
In the European trading session, United Kingdom (UK) Prime Minister Keir Starmer warned that the administration is “exploring every diplomatic avenue to reopen Hormuz”. Starmer added, “It will not be easy to make the Hormuz Strait safe.”
During the day, the United Arab Emirates (UAE) also expressed concerns over Hormuz closure and showed readiness to support the US and its allies for its reopening. The UAE is willing to join Washington and other allies for a forceful reopening of the Strait of Hormuz, according to Arab officials, the Wall Street Journal (WSJ) reported.
Meanwhile, significant damage to Gulf energy infrastructure due to military actions by Iran would keep the overall supply limited. International Energy Agency chief Fatih Birol stated during the day that “some 40 key energy assets have been damaged in the Middle East”. However, he assured that the agency will release oil from its strategic reserves to control the situation.
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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