WTI Oil extends decline as Hormuz traffic normalizes, US Iran waiver lifts supply

WTI Oil price declines for a fourth consecutive day as traffic through the Strait of Hormuz gradually normalizes.
The US administration granted a temporary waiver to buyers of already-loaded Iranian Oil, further expanding available supply.
Iraq threatens to consider all options if its production quota within the organization is not significantly raised.

Ghiles Guezout FXStreet

West Texas Intermediate (WTI) US Oil trades around $69.30 at the time of writing, down 0.65% on Thursday. The American benchmark Crude is now posting a fourth consecutive day of losses, weighed down by a convergence of supply-side factors reshaping market expectations.

The primary catalyst behind this bearish move is the progressive normalization of maritime traffic through the Strait of Hormuz, the strategic chokepoint through which nearly one-fifth of the world's energy supply flows. Speaking at the Reuters Global Energy Forum in New York, United States (US) Energy Secretary Chris Wright indicated that roughly 20 million barrels of Oil transited the strait within a single 24-hour window, describing these sustained flows as a return to normal operational conditions.

Shipping tracking data corroborates this shift. An interim deal struck on Wednesday cleared the way for three previously stranded tankers, carrying a combined 5 million barrels of Crude, to resume their passage through the Gulf. The International Maritime Organization (IMO) also confirmed it had received guarantees allowing hundreds of vessels to exit the Persian Gulf.

On top of the resumption of flows, Washington's decision to grant a temporary waiver authorizing buyers to take delivery of already-loaded Iranian cargoes has mechanically boosted Iran's sales volumes on international markets and contributed to pushing down the prices of physical Crude cargoes globally.

Structural tensions within the Organization of the Petroleum Exporting Countries (OPEC) are adding another layer of complexity to an already clouded picture. A senior official at Iraq's Oil Ministry stated that Baghdad would have to consider all options if its production quota is not significantly increased. The prospect of Iraq contemplating an exit from the cartel raises fresh concerns about the group's cohesion, in a context already strained by the surprise departure of the United Arab Emirates (UAE) earlier this year.

Yet despite the breadth of these bearish pressures, the durability of the move remains a point of contention among analysts. Goldman Sachs recently indicated, according to Reuters, that it does not expect a massive or sustained increase in Iranian production, even if the US waiver were to be extended beyond its scheduled August 21 expiry date. That caveat introduces an important nuance into a market attempting to gauge the true and lasting impact of a normalizing Middle Eastern supply landscape.

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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