WTI jumps roughly 8% toward $100 as US blockades Strait of Hormuz

Dhwani Mehta FXStreet

West Texas Intermediate (WTI) – the US oil benchmark – has opened the week with a bullish gap, climbing roughly 8%, looking to retarget the $100 threshold.

Following a down week, the latest surge is mainly driven by the re-escalation of the conflict between the United States (US) and Iran.

The 21-hour-long peace talks over the weekend failed and prompted US President Donald Trump to pledge to blockading Iranian ports and the maritime traffic via the Strait of Hormuz.

The US Central Command (CENTCOM) announced that the “Forces will start blockade of all maritime traffic entering and exiting Iranian ports on Monday, 10 AM ET” (14:00 GMT).

Meanwhile, the latest Wall Street Journal Report (WSJ) report stated that President Trump and his advisers are weighing restarting limited military strikes in Iran in addition to the US blockade of the Strait of Hormuz as a way to break a standoff in peace talks.

Looking ahead, the focus remains on further details of the US blockades to the Strait and its implications on the already fragile US-Iran ceasefire.

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

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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