WTI extends recovery from two-week low, approaches $92.00 on US-Iran and Hormuz risks

WTI attracts some buyers in reaction to US military strikes on Iranian boats and missile launch sites.
Disagreements over Iran’s nuclear program and the Strait of Hormuz keep geopolitical risks in play.
The emergence of some USD buying could act as a headwind for Oil prices and cap additional gains.

Haresh Menghani FXStreet

West Texas Intermediate (WTI) – the benchmark US Crude Oil price – regains some positive traction on Tuesday and recovers a part of the previous day's heavy losses to the $88.75-$88.70 region, or over a two-week low. The commodity climbs back closer to the $92.00 mark during the first half of the European session as traders keenly await further developments surrounding the Middle East crisis.

The optimism over a potential US-Iran peace deal faded rather quickly following reports that US forces conducted self-defense strikes in southern Iran on Monday, targeting missile launch sites and Iranian boats attempting to emplace mines. Furthermore, Iran's Supreme Leader, Mojtaba Khamenei, said on Tuesday that the US will no longer have a safe haven for Middle East bases and added that he invites all Islamic countries to cooperate.

Meanwhile, Iran’s Islamic Revolutionary Guard Corps (IRGC) reported that it identified hostile aircraft entering its airspace and intercepted an MQ-9 drone. The renewed military action comes on top of disagreements over Iran's nuclear program and a standoff over the Strait of Hormuz. Adding to this, US President Donald Trump has repeatedly threatened more military action against Iran if it does not accept a broader peace deal.

The latest developments keep geopolitical risks in play, offsetting reports that the US and Iran have reached a framework deal. Apart from this, the effective closure of the Strait of Hormuz and the US naval blockade of Iranian ports have resulted in historic supply deficits, which, in turn, provide a goodish lift to Crude Oil prices. That said, the emergence of some US Dollar (USD) buying could cap the USD-denominated commodity.

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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