WTI Crude Oil returns above $93.00 as concerns about the ceasefire grow
- Oil prices appreciate nearly $7 from Wednesday's lows and hit session highs above $93.00.
- Uncertainty about the Strait of Hormuz is pushing Crude prices higher.
- Iran threatened to break the agreement, but plans for direct US-Iran talks in Pakistan remain alive.
Oil prices have trimmed some of the last two days' losses, and the price of a barrel of the US benchmark West Texas Intermediate (WTI) returned to levels above $93.00 at the time of writing, from lows near $86.00 on Wednesday.
A fragile ceasefire remains in play, but Tehran has closed the Strait of Hormuz again in retaliation for Israel’s massive attack on Lebanon, which has been considered by Tehran a violation of the ceasefire agreement.
The US and Israel affirmed that operations against Hezbollah in Lebanon were not included in the deal, and US President Donald Trump warned of further action if Iran fails to comply with the terms of the deal.
Peace talks in Pakistan
The peace process, however, goes on as the US and Iran announced that they will send respective delegations for direct talks that will start in Pakistan on Saturday. This gives a glimpse of hope to investors and is keeping Oil prices from accelerating further.
Crude Oil prices have declined from March peaks but remain nearly 40% above pre-war levels. Markets remain cautious about a durable peace in an extremely volatile region and are beginning to accept that the full opening of the Strait of Hormuz might take some time, even if a peace deal were signed today.
Last weekend, the Organisation of the Petroleum Exporting Countries and allies (OPEC+) agreed to increase their output quotas by 206K barrels per day in May. This initiative, however, will be very difficult to put into practice with Hormuz closed and the limited supply capacity of Gulf countries, as some of their oilfields have suffered severe damage in the five weeks of war.
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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