WTI falls to near $73.00 despite rising supply risks due to Middle East tensions

WTI prices extend its losing streak to six-month lows.
The downside of the Oil prices could be restrained due to heightened supply concerns.
US Secretary of State Tony Blinken stated that Iran and Hezbollah could attack Israel as early as Monday.

Akhtar Faruqui FXStreet

West Texas Intermediate (WTI) crude Oil price trades around $73.10 per barrel, extending its losses to six-month lows on Monday. However, the downside of the Oil prices could be limited due to rising supply risks from geopolitical tensions in the Middle East.

Crude Oil prices received support from the ongoing conflict in Gaza, with an Israeli airstrike hitting two schools and resulting in at least 30 casualties on Sunday, according to Palestinian officials. This escalation follows a round of talks in Cairo that ended without progress, as reported by Reuters.

Israel and the United States are preparing for a potential escalation in the region following Iran and its allies, Hamas and Hezbollah, pledging retaliation against Israel for the killing of a Hamas leader. US Secretary of State Tony Blinken stated on Sunday that Iran and Hezbollah could attack Israel as early as Monday, according to three sources briefed on the call, as reported by Axios.

Crude Oil prices declined due to increased recession fears in the United States, the world’s largest Oil consumer. This drop was influenced by Friday's disappointing US jobs market data and a larger-than-expected contraction in factory activity, as indicated by the ISM Manufacturing PMI.

US Nonfarm Payrolls (NFP) increased by 114K in July from the previous month of 179K (revised down from 206K). This figure came in weaker than the expectation of 175K, data showed on Friday. Meanwhile, the US Unemployment Rate rose to the highest level since November 2021, coming in at 4.3% in July from 4.1% in June. Additionally, the US ISM Manufacturing Purchasing Managers Index (PMI) tumbled to an eight-month low of 46.8 in July.

The Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia (OPEC+), are adhering to their plan to gradually end voluntary production cuts starting in October. Despite this, a Reuters survey released on Friday indicated that OPEC Oil output increased in July, even with the group's production cuts in place.

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 13 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

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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