WTI Oil weakens as Middle East export recovery tempers supply risk concerns
- WTI remains below the $70 mark as expectations of higher Middle East supply weigh on prices.
- Markets expect a gradual recovery in Middle East exports despite ongoing risks around the Strait of Hormuz.
- Commerzbank and Rabobank analysts believe investors may be overly optimistic about the supply outlook.
West Texas Intermediate (WTI) US Oil falls 3.25% on Friday and trades around $69.05 at the time of writing, after hitting its lowest level since late February at $68.48 earlier in the day. The Crude Oil extends its weekly decline as investors increasingly price in a recovery in global supply following the disruptions caused by the conflict with Iran.
Market sentiment has improved as Oil flows through the Strait of Hormuz continue to recover. QatarEnergy has launched its first July-August Crude tender since the conflict began, while Saudi Aramco has resumed loadings at its Ras Tanura terminal after several months of disruption. These additional volumes come on top of new supplies from Iraq, Kuwait and Abu Dhabi, reinforcing expectations of a stronger supply outlook.
US Energy Secretary Chris Wright also said that tanker traffic through the Strait of Hormuz has returned to levels close to those seen before the conflict, with around 20 million barrels transiting the waterway on Wednesday. He also stated that Venezuelan Oil production is increasing rapidly and could continue to grow through the end of US President Donald Trump's term, adding to expectations of a stronger global supply.
Despite the improved sentiment, several banks remain cautious. Commerzbank argues that the market is underestimating supply risks, noting that tanker traffic data still do not point to a full normalization of shipping activity. The bank also highlights that combined US inventories of Crude Oil, gasoline and distillates remain around 7% below their seasonal average, a factor that could support prices if exports recover more slowly than expected.
Rabobank also maintains a cautious stance following the recent attack on a cargo vessel off the coast of Oman. The bank believes the incident highlights the fragile security situation in the Strait of Hormuz, even though the market continues to expect the memorandum of understanding between the United States (US) and Iran to remain in place. According to Rabobank, the agreement continues to support Iranian Oil exports while limiting the immediate risk of further escalation.
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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