WTI holds above $72.00, near two-week high amid fresh US-Iran tensions
- WTI enters a consolidation phase following an Asian session uptick to a two-week high.
- Fresh US-Iran tensions and supply disruption worries lend support to the commodity.
- The OPEC+ decision to raise oil production and Saudi Arabia's oil price cut cap gains.
West Texas Intermediate (WTI) – the benchmark US Crude Oil price – struggles to capitalize on the previous day's strong move up and enters a bullish consolidation phase near a two-week high, touched during the Asian session this Wednesday. The black liquid currently trades just above the $72.00 mark, with bulls awaiting a sustained strength beyond a technically significant 200-day Simple Moving Average (SMA) amid renewed US-Iran hostilities.
In fact, the US military launched a new wave of strikes against Iran on Tuesday following reports of attacks on three oil tankers in the Strait of Hormuz, jeopardizing the already fragile ceasefire. Moreover, the Iranian Islamic Revolutionary Guards Corps (IRGC) said that it targeted 85 US military sites in Bahrain and Kuwait following the US ceasefire breach and added that it downed a US MQ9 drone in the country's south. This raises the risk of a further escalation of conflict in the region, prompting traders to price in geopolitical risk premiums and acting as a tailwind for Crude Oil prices.
Meanwhile, the US also moved to withdraw a key concession that allowed Iran to sell oil in international markets. Furthermore, the US-Iran standoff fuels concerns about supply disruptions in the Strait of Hormuz, lending additional support to the black liquid. The upside for the commodity, however, remains capped on the back of the OPEC+ decision of another production target increase starting in August. Furthermore, Saudi Arabia slashed its August official selling price to Asia by an unprecedented $11 per barrel, which contributes to keeping a lid on gains for Crude Oil prices.
The market focus now shifts to the release of the June FOMC meeting Minutes, which will play a key role in driving the US Dollar (USD) demand and providing some impetus to the USD-denominated commodities. Apart from this, developments surrounding the Middle East crisis might continue to infuse volatility in Crude Oil prices.
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
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
