WTI Oil advances on Trump’s Iran shift, mounting Middle East supply risks

WTI Oil prices advance as fears of renewed conflict in the Middle East fuel concerns over global supply.
Donald Trump confirms the memorandum of understanding with Iran is over following the latest US strikes.
ING and BNY analysts say geopolitical risks are supporting Oil prices, although the scale of any further escalation remains uncertain.

Ghiles Guezout FXStreet

West Texas Intermediate (WTI) US Oil trades around $73.10 on Wednesday at the time of writing, up 1.48% on the day, as investors reassess risks to global energy supply following a renewed deterioration in geopolitical conditions across the Middle East.

The Oil market is supported by comments from United States (US) President Donald Trump, who confirmed that the memorandum of understanding with Iran aimed at ending the conflict in the Middle East is now over. Speaking from the North Atlantic Treaty Organization (NATO) summit, Trump also said he no longer wants to negotiate with Iran after the latest attacks on commercial vessels transiting through the Strait of Hormuz.

Tensions intensified after the US Central Command (CENTCOM) confirmed it had struck Iranian military infrastructure in response to Tehran's attacks on several commercial ships in the Strait of Hormuz. The strategic waterway handles around one-fifth of global Oil supply, raising concerns over potential disruptions to energy flows.

ING analysts note that Oil prices have climbed, supported by renewed tensions in the Persian Gulf and the US decision to revoke a temporary license allowing certain Iranian Oil sales. The bank added that the move increases the risk of a breakdown in negotiations between Washington and Tehran, while declining US Crude and refined product inventories, together with fresh attacks on Russian refineries, are providing additional support for Oil prices.

Meanwhile, BNY believes financial markets are becoming increasingly fragile as hopes for a swift return to normal shipping conditions through the Strait of Hormuz continue to fade. The bank notes that Oil prices have already reacted strongly to the latest escalation but argues that the Crude market will ultimately determine whether the conflict develops into a broader and more sustained geopolitical crisis capable of generating wider market disruption.

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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