WTI Oil hits fresh six-week highs at $86.00 as supply concerns rise
- WTI Oil reaches six-week highs at 86.00 and is 26% up on the month so far.
- Market concerns that the Middle East conflict might escalate out of control are pushing crude prices higher.
- Reports hinting at the closure of the Red Sea waterway are boosting Oil prices further.
Oil prices continue rallying on Wednesday as hostilities in Iran threaten to escalate out of control, and reports of vessels turning around in the Red Sea heighten concerns about supply disruptions. Against this background, the US Benchmark West Texas Intermediate (WTI) has reached fresh six-week highs past $86, and appreciates 26% so far in July.
The US military hit targets in Iran for the 11th consecutive day on Wednesday, and US President Donald Trump threatened to attack the Pickaxe Mountain, an area which is believed to hide an underground nuclear facility. Tehran affirmed that any attack on nuclear sites would extend the conflict to the region.
Supply risks intensify across key corridors
Meanwhile, Reuters reported that three Saudi Arabian vessels have turned around in the Red Sea, following the announcement of a blockade of the Bab el-Mandeb Strait by Yemen’s Iran-backed Houthi militias. This is another key waterway for Saudi Crude, and its closure will, highly likely, accentuate fears about supply disruptions.
Analysts at Rabobank’s RaboResearch Global Economics & Markets team highlight that crude benchmarks have surged on mounting supply concerns, noting that “Brent, WTI, and refined products rallied sharply as Hormuz disruptions, intensified Russia-Ukraine strikes, CPC terminal outages, and record-tight diesel markets renewed fears of a broader supply crunch.” The bank frames these overlapping disruptions as a significant escalation in perceived supply risk, with the combination of geopolitical tensions, infrastructure outages and tight diesel availability reinforcing the market’s focus on potential constraints to global Oil flows.
On Tuesday, data released by the American Petroleum Institute (API) revealed that Crude Oil stocks increased by 2.6 million barrels in the week of July 17, against market expectations of a 1.5 million decline, as demand declined. The relief in Oil prices provided by these figures, however, has been short-lived, with the war in Iran attracting all the attention.
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
Guillermo Alcala
FXStreet
Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.
