WTI drops more than 4% below $97 as profit-taking kicks in, Iran tensions limit losses

WTI Oil falls more than 4% on Friday as traders take profits following a strong rally earlier this week.
US crude Oil inventories decline less than expected, adding further downward pressure on prices.
Fresh attacks around the Strait of Hormuz keep global supply concerns alive and could limit the downside in Oil prices.

Ghiles Guezout FXStreet

West Texas Intermediate (WTI) US Oil drops 4.54% on Friday and trades around $96.00 at the time of writing. The crude Oil comes under heavy profit-taking pressure following its strong advance earlier this week, while a smaller-than-expected decline in United States (US) crude inventories adds further pressure on prices.

WTI nevertheless remains sharply higher for the week after benefiting from an increase in the geopolitical risk premium linked to the conflict between the United States and Iran. Friday’s decline therefore primarily reflects profit-taking as investors also assess the latest US inventory data.

The Energy Information Administration (EIA) reports that US crude Oil inventories fell by 391K barrels in the week ending September 4, following a 4.45M decline in the previous week. Markets had expected a larger draw of 1.6M barrels. The modest decline suggests that the balance between supply and demand in the US market remains less tight than anticipated.

Geopolitical tensions in the Middle East, however, remain likely to limit WTI’s correction. US President Donald Trump said on Thursday that he was not seeking a deal with Iran and suggested that Oil prices could remain elevated until after the US midterm elections in November.

Risks surrounding the region’s key shipping routes also remain in focus. The Islamic Revolutionary Guard Corps (IRGC) said its navy struck a US Saildrone-type unmanned vessel in the Strait of Hormuz. Any further disruption in this strategic waterway could fuel concerns over global Oil supplies.

Meanwhile, Yemen’s Houthis have seized the port city of Mocha, strengthening their presence near the Bab al-Mandeb Strait. Escalating tensions around two crucial routes for global energy shipments therefore keep a geopolitical risk premium embedded in Oil prices, even though it is not enough on Friday to offset profit-taking.

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

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.

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