WTI pauses its decline as Crude shipments resume through the Strait of Hormuz

WTI steadies after a sharp decline as improving Hormuz shipping conditions ease supply fears.
Improving shipping conditions in the Strait of Hormuz are allowing Crude flows to return to the market.
Investors are reducing the geopolitical risk premium following the interim agreement between the United States and Iran.

Ghiles Guezout FXStreet

West Texas Intermediate (WTI) US Oil trades around $75.60 on Friday at the time of writing, up 0.21% on the day, but remains under pressure after the sharp decline seen this week. The Crude Oil is heading for a weekly loss of roughly 10% as traders reassess Middle East supply risks amid rapidly improving conditions in the Strait of Hormuz.

Market sentiment has improved significantly following the implementation of a 60-day memorandum of understanding between Washington and Tehran. The diplomatic breakthrough has helped reduce the geopolitical risk premium embedded in energy prices as concerns over prolonged disruptions to Oil exports continue to fade.

Shipping traffic is gradually resuming through the strategic waterway, which is vital for global Oil trade. The United States (US) Central Command (CENTCOM) announced that it has lifted all maritime restrictions on traffic traveling to and from Iranian ports and coastal waters. At the same time, several Crude cargoes that had previously been stranded have started leaving the region, improving global supply prospects.

US Vice President JD Vance stated that 12.5 million barrels of Oil passed through the Strait of Hormuz overnight without any interference from Iran, providing further evidence that shipping conditions are returning to normal. Meanwhile, Kuwait announced plans to gradually increase production, reinforcing expectations of improved supply availability.

However, some caution remains. According to Rabobank, the agreement reduces immediate risks for the global economy but leaves unresolved questions regarding the future administration of the Strait of Hormuz. The bank noted that Iran is considering introducing maritime fees after the 60-day period expires, while US President Donald Trump has already voiced opposition to any tolls on vessels using the strategic waterway.

Deutsche Bank also highlighted that signs of renewed Oil flows initially pressured Crude prices lower after the agreement was signed, although the market later stabilized. The bank believes that the gradual resumption of exports through the Strait of Hormuz is helping to ease concerns about global supply disruptions, while uncertainty surrounding longer-term negotiations continues to linger.

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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