WTI advances as supply tensions overshadow US inventory build
- WTI US Oil gains 0.63% on Friday and remains close to its highest level in more than three weeks.
- The standoff between Washington and Tehran over the Strait of Hormuz keeps global energy supply concerns elevated.
- A larger-than-expected increase in US crude inventories limits the upside momentum in Oil prices.
West Texas Intermediate (WTI) US Oil trades around $86.50 on Friday at the time of writing, up 0.63% on the day. US Oil remains close to Thursday’s high of $87.38, its highest level in more than three weeks, as concerns about global energy supplies continue to support prices.
Tensions in the Middle East remain the main driver of the Oil market. The United States (US) and Iran continue to show no signs of rapprochement over restoring commercial navigation through the Strait of Hormuz. The continued closure of this strategic waterway, combined with disruptions in the Bab el-Mandeb Strait, maintains a significant risk premium in energy prices.
Risks to regional Oil flows are also heightened by tensions in the Red Sea. Yemen’s Iran-backed Houthi group claims to have targeted several Saudi Oil tankers since late July. These developments fuel concerns that a further escalation of the conflict could disrupt crude exports and reduce available supply in the global market.
Meanwhile, US President Donald Trump is stepping up economic pressure on Tehran. He threatens to launch a sweeping sanctions campaign against Iran and penalize countries, financial institutions or companies that continue to maintain commercial ties with the country. Iranian Foreign Minister Abbas Araghchi condemns the threats as “illegal and inhumane,” highlighting the lack of diplomatic progress that could quickly ease tensions.
Geopolitical support for WTI is nevertheless partially offset by a larger-than-expected increase in US inventories. According to the Energy Information Administration (EIA), US crude Oil stocks rose by 4.405 million barrels in the week ending August 14, compared with market expectations for a 600,000-barrel decline. The build follows an increase of 17.422 million barrels in the previous week and could limit gains in Oil prices if the trend continues.
Despite the increase in US inventories, immediate concerns about global supply remain at the forefront. In the absence of signs of de-escalation between Washington and Tehran or a reopening of the Strait of Hormuz, the risk of further disruptions should continue to support WTI in the near term.
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.
Author
Ghiles Guezout
FXStreet
Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.
