WTI Oil steadies around $70.00 as markets bet on a negotiated end to Iran’s conflict
- Oil prices remain steady at $70 despite peace talks uncertainty and limited traffic through the Strait of Hormuz.
- Investors' optimism about a negotiated end of the conflict is keeping Oil prices from escalating further.
- The timing of the next round of talks remains uncertain, with the status of Hormuz being a key point of friction.
Crude Oil prices remain flat for the second consecutive day this week, with the price of the US benchmark West Texas Intermediate (WTI) barrel stuck at the $70.00 area. The uncertainty surrounding the US-Iran conflict and this weekend’s skirmishes have failed to deter investors from betting on a negotiated end of it, which is keeping Crude Oil at pre-war levels.
News from Iran, however, remains confusing. US President Donald Trump said on Monday that Tehran requested a meeting, following a round of reciprocal attacks over the weekend. Iran’s Foreign Ministry has denied any plan to meet US negotiators this week but announced that it will send an expert delegation to Doha.
Traffic through the Strait of Hormuz collapses
This weekend’s hostilities have also limited oil tankers’ traffic through the Strait of Hormuz. According to data by the Strait of Hormuz Live Tracker, only 5 vessels have crossed the waterway in the last 24 hours, below the average of around 30 last week and a minimal fraction of the daily average of 160 vessels before the war.
The status of the key waterway remains a key point of friction between the US and Iran. Ebrahim Azizi, the Chairman of the Iranian Parliament’s National Security and Foreign Policy Commission, said in a local broadcaster that “the Strait of Hormuz is an inseparable part of Iran’s national sovereignty” and that it will be managed solely by the Islamic Republic.
These views contrast with the position of the US, which has called on Iran to simply step aside and let traffic flow freely and safely through the strait.
Markets, however, seem to believe that both parties will, eventually, reach a lasting peace agreement, which is keeping Oil prices from appreciating further. WTI Oil is set to close the month with a nearly 20% decline, adding to a 15% drop in May, following the first US-Iran ceasefire agreement. Oil prices have returned to pre-war levels despite the depleted global reserves and the trickle of tankers crossing the Hormuz chokepoint. Only time will say if market expectations were too optimistic.
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.
