Sea drones target oil tankers in the Middle East as conflict risks widen — Reuters

Lallalit Srijandorn FXStreet

Naval drones have been used in attacks on oil tankers in the Gulf region since war erupted between the United States (US), Israel and Iran, suggesting ‌a dangerous new threat in the key shipping lane, Reuters reported on Wednesday.

Iran is suspected in attacks, as Tehran has previously showcased its naval drone capabilities at military displays.

Iran warned that the world should be ready for oil at $200 a barrel as its forces hit merchant ships on Wednesday and as shipping through the Strait of Hormuz has come to a near standstill.

Elsewhere, a drone assault hit a major US diplomatic facility in Iraq on Tuesday in a suspected retaliation by pro-Tehran militias to the US and Israel’s war on Iran, according tothe Washington Post. Iraqi official stated that oil ports have completely stopped operations and commercial ports continue to operate after attack on fuel tanker.

Market reaction

At the time of writing, the West Texas Intermediate (WTI) is up 2.47% on the day at $87.38, retreating from over three-year highs of $113.28 reached earlier this week.

WTI Oil FAQs

What is WTI Oil?

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.

What factors drive the price of WTI Oil?

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.

How does inventory data impact the price of WTI Oil

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.

How does OPEC influence the price of WTI Oil?

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.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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