WTI Crude Oil rebounds with Iran and supply concerns back in focus
- WTI Crude Oil rises above $65.00 as inventories continue to fall.
- Iran's Supreme Leader vows to retaliate against further attacks from the United States.
- The re-escalation of tensions between Israel, Iran and the US may result in a further extension of Oil prices.
West Texas Intermediate (WTI) is rebounding on Thursday after recent inventory data suggested that demand is continuing to outpace supply.
WTI is currently trading above the $65.00 psychological level with intraday gains of approximately 1.10% at the time of writing.
With Wednesday’s Energy Information of Administration (EIA) report highlighting another sharper than expected drawdown in Oil inventories, supply shortages have provided temporary relief to Oil prices.
Additionally, despite an Israel-Iran ceasefire appearing to remain intact, recent comments from Iran’s leader, Ayatollah Ali Khamenei, have provided an additional layer of uncertainty on the credibility of the Israel-Iran truce.
Israel-Iran ceasefire drives Oil lower, but reports suggest that supply remains subdued
Following the announcement that Israel and Iran had officially agreed to a ceasefire agreement on Tuesday, investors cheered, and the price of Oil slumped.
The Middle East tensions that flared up when Israel attacked Iran on June 12 highlighted the sensitivity of prices to the potential disruption of the Strait of Hormuz.
With markets embracing the potential of a truce between Israel and Iran, WTI Oil fell approximately $10.00 a barrel within 24 hours. However, inventory reports released throughout the week shifted attention to the dynamics of supply and demand.
On Monday, the price of WTI had peaked at $76.74 before falling to a low of $63.73 on Tuesday.
The EIA report on Wednesday revealed that Oil inventories fell by 5.8 million barrels over the past week, surpassing analyst expectations of a 600K barrel drawdown.
Iran's Supreme Leader vows to retaliate against further attacks by the United States
In the first televised interview since the ceasefire, Iran’s Supreme Leader stated that Iran would respond to any further attacks by the US.
Reuters reports stated that additional comments by Khamenei included that "The US President Trump unveiled the truth and made it clear that Americans won't be satisfied with anything less than surrender... such an event will never happen".
Should these comments transpire into a broader escalation between the two nations, Oil prices could recover as fears over potential supply disruptions come back into focus.
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
Tammy Da Costa, CFTe®
FXStreet
Tammy is an economist and market analyst with a deep passion for financial markets, particularly commodities and geopolitics.
