WTI Oil rallies above $81 as Middle East tensions threaten global Oil supplies

WTI Oil prices rise sharply as fresh US strikes on Iran fuel fears of prolonged supply disruptions.
Threats to close the Strait of Hormuz and the Bab el-Mandeb Strait increase concerns over global energy supplies.
Commerzbank analysts say a blockade of these strategic shipping routes could drive Oil prices even higher.

Ghiles Guezout FXStreet

West Texas Intermediate (WTI) trades around $81.10 at the time of writing on Friday, up 2.76% on the day, and is heading for a weekly gain of more than 13% as geopolitical tensions in the Middle East continue to escalate.

The conflict intensified after the United States (US) launched another wave of strikes against Iranian military facilities. According to the US Central Command (CENTCOM), the operations are intended to further degrade Iran's military capabilities, while US forces continue their operations around the Strait of Hormuz.

In response, the Islamic Revolutionary Guard Corps (IRGC) stated that no Oil or Gas exports will pass through the Strait of Hormuz as long as US strikes continue. The IRGC also warned of stronger retaliation against the United States and countries hosting US military bases. Earlier in the day, Iran also threatened to close the Red Sea, while Qatar said it intercepted a missile attack.

These developments have reinforced concerns over global energy flows. International Energy Agency (IEA) Executive Director Fatih Birol warned that if Oil shipments through the Strait of Hormuz do not resume soon, global energy security could become a major concern.

Commodity analysts at Commerzbank also highlighted that geopolitical risks continue to support the Oil market. The bank said that a potential blockade of the Bab el-Mandeb Strait, another strategic shipping route for regional exports, could push Oil prices even higher. Commerzbank added that Chinese Crude Oil imports could also increase in the coming weeks as cargoes that successfully transited the Strait of Hormuz arrive at Chinese ports.

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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