WTI consolidates below $72.00 as traders monitor geopolitical developments

WTI is seen consolidating in a range as traders seem hesitant amid mixed US-Iran messaging.
Exchanges of fire between the US and Iran keep geopolitical risks in play and lend support.
Trump's claim that Iran wants to make a deal eases the market anxiety and caps the upside.

Haresh Menghani FXStreet

West Texas Intermediate (WTI) – the benchmark US Crude Oil price – steadies during the Asian session on Friday, stalling the previous day's downfall amid mixed messaging from the US and Iran. The commodity currently trades around the $71.75 area, nearly unchanged for the day, as traders await further developments surrounding the Middle East crisis.

The geopolitical risk premium resurfaced this week after the US military unleashed a new wave of strikes against Iran earlier this week in retaliation for Tehran’s attacks on commercial ships in the Strait of Hormuz. Iran responded by targeting American allies and bombing US military installations across Bahrain and Kuwait. Moreover, US President Donald Trump signaled the end of the ceasefire on Wednesday, which, in turn, led to a rally in Crude Oil prices during the first half of the current week.

The market anxiety, however, subsided after Trump on Thursday claimed that Iran had called to make a deal with the US to cease escalating hostilities in the Middle East. Adding to this, a White House official said that the US is still committed to the memorandum of understanding with Iran. This, along with the OPEC+ decision of another production target increase, could act as a headwind for Crude Oil prices, warranting some caution before placing fresh bullish bets or positioning for any upside.

Earlier this week, the US Energy Information Administration (EIA) reported a larger-than-expected build in inventories for the week ending July 3, marking the first rise in 11 weeks. According to the latest data, commercial Crude Oil stocks rose by 2.998 million barrels, significantly overshooting analyst forecasts. This might further contribute to keeping a lid on Crude Oil prices. Nevertheless, the commodity seems poised to register modest weekly gains and snap a four-week losing streak.

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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