WTI Oil slumps as US-Iran Strait of Hormuz deal unwinds geopolitical risk premium

WTI falls to around $79.15, down 4.53% on Monday, after hitting its lowest level since March 10.
Markets react to the announcement of a US-Iran agreement that paves the way for the reopening of the Strait of Hormuz.
Comments from US and Iranian officials signal diplomatic progress, easing concerns about disruptions to global energy supplies.

Ghiles Guezout FXStreet

West Texas Intermediate (WTI) US Oil is falling sharply on Monday and trades around $79.15 at the time of writing, down 4.53% on the day. Crude Oil has dropped to its lowest level since March 10 as investors unwind part of the geopolitical risk premium that had been built into prices following recent tensions between Washington and Tehran.

The decline comes after several statements suggested that a deal between the United States (US) and Iran is close to being finalized. US Vice President JD Vance told CNBC that authorities expect the Strait of Hormuz to remain “open toll-free in the long term,” while noting that several details still need to be resolved ahead of the planned signing later this week.

On the Iranian side, Foreign Ministry spokesperson Esmail Baghaei Hamaneh said that Tehran would take measures to ensure safe passage through the Strait of Hormuz in coordination with Oman and other countries. He also stated that the US would commit to granting Iran access to its frozen funds, while stressing that both sides would be expected to fulfill their obligations under the agreement.

The announced framework includes the gradual reopening of the Strait of Hormuz, a strategic waterway through which nearly 20% of global Oil supplies transit. The prospect of restored shipping flows has eased fears of prolonged disruptions to global energy markets, which had provided significant support to crude prices in recent weeks.

However, some analysts believe that a full normalization of Oil markets could take time. According to Reuters, Tamas Varga of PVM Oil Associates said that restoring Oil flows to pre-crisis levels could take several weeks or even months. In addition, damage to energy infrastructure across the Middle East may continue to constrain supply in the near term.

Investors are now focused on the next stages of negotiations between the United States and Iran and on the practical implementation of the Strait of Hormuz reopening, which could shape oil market dynamics in the weeks ahead.

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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