Experts agree: US-Iran tensions are far from over as Hormuz risks return
- The Oil price drops to near $88.65, but is broadly upbeat.
- Market experts doubt that US-Iran tensions won’t revive.
- Middle East tensions revived this week after the US attacked Iranian targets for deploying mines near the Hormuz.
West Texas Intermediate (WTI), futures on NYMEX, drops to near $88.65 while struggling to move above the $90 mark during the European trading session on Friday.
The Oil price faces slight selling pressure as fears of further escalation in military aggression between the United States (US) and Iran, following remarks from US President Donald Trump that renewed attacks between both nations won’t last “too long”. However, Trump didn’t rule out the possibility of a further military campaign with Iran.
The exchange of attacks between both nations started last weekend, following weeks of relative calm, after US Central Command (CENTCOM) struck Iranian rocket launchers that were preparing to send mines into the Strait of Hormuz.
Market experts doubt that the renewed US-Iran tensions will normalize anytime soon. Analysts at Deutsche Bank highlight that the latest flare-up between the US and Iran has fuelled renewed concerns over regional supply risks, noting that “the recent flare-up between the US and Iran has led to fresh scepticism that energy flows through the Strait of Hormuz will normalise anytime soon.
Strategists at Commerzbank also said that the situation between the US and Iran remains “highly fluid, with little evidence yet of a durable de-escalation”.
Meanwhile, analysts at TD Securities argued that renewed hostilities between the US and Iran continue to highlight the “fragility of any non-concrete deal or short-term de-escalation”, with the bank stressing that "Iran is not backing away from controlling the Strait, which ultimately keeps probability of escalation high as the US facilitates ship passages through the Omani route."
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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