WTI Oil drops more than 7% as US, Iran pause strikes
- WTI Oil falls by more than 7% after the United States and Iran paused military strikes over the weekend.
- Washington opens the door to potential negotiations with Tehran, temporarily easing supply concerns.
- Markets remain alert to supply disruption risks following Ansar Allah attacks on Saudi Oil facilities.
West Texas Intermediate (WTI) US Oil extends its decline on Monday, trading around $82.60 per barrel at the time of writing, down 7.4% on the day. Crude Oil opened the week with a sharp bearish gap after the United States (US) and Iran paused military strikes over the weekend, raising hopes of a de-escalation following two weeks of direct conflict.
The decline in Oil prices comes as investors reduce the geopolitical risk premium. The temporary truce between Washington and Tehran has fueled expectations that diplomatic talks could resume, potentially allowing commercial shipping to safely return through the Strait of Hormuz, a critical route for global Oil exports.
According to several media reports, the United States also halted its military campaign amid growing concerns over dwindling interceptor missile supplies and the limited number of remaining high-value targets in Iran. Chair of the Joint Chiefs of Staff General Dan Caine reportedly warned US President Donald Trump that continuing the campaign could significantly strain US military capabilities.
The US Ambassador to the United Nations stated that US forces remain ready to respond while adding that President Trump wants to leave room for potential negotiations. Meanwhile, a senior Iranian official, quoted by Reuters, said Tehran continues to follow an "attack for attack" policy, suggesting Iran will also suspend military operations as long as the United States refrains from launching new strikes.
Despite the temporary pause, energy markets remain cautious. Concerns over global Oil supplies have not completely disappeared after the Iran-backed Houthis claimed responsibility for recent attacks on Saudi Arabian Oil facilities along the Red Sea. These risks continue to limit the downside potential for Oil prices should geopolitical tensions flare up again.
Oil retreats as US-Iran pause tempers supply fears but Strait of Hormuz risks linger
Analysts at OCBC note that Oil prices have eased after recovering much of their June losses last week, as Iran signaled a pause in retaliatory strikes while the US appeared to halt further attacks. They argue that “the renewed decline in Oil prices brings developments closer to our base case that crude will gradually trend lower over time,” although they caution that “Oil could rebound at some point as the underlying issues of freedom of navigation through the Strait of Hormuz and Iran’s nuclear programme remain unresolved.”
ING analysts observe that “the price action in Oil this morning clearly reflects the market's desperation for positive news,” pointing out that after 13 days of strikes, “the US has held off on further strikes over the last [two] days, while Iran also paused retaliatory attacks.”
This brief recess has seen Brent “retreat aggressively, down more than 7% at one stage, briefly below US$90/bbl.” While they describe this as “the first tangible signal of de-escalation,” they add that “the reasons behind it are less clear,” with “little explanation from the US” and “no meaningful pickup in vessel flows through the Strait of Hormuz.” In their view, “we’re unlikely to see any recovery until there’s clarity on whether this de-escalation is more permanent and whether vessels can navigate the strait without fear of attack.”
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
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.
