WTI rebounds from three-week low, reclaims $91.00 as Mideast tensions persist

WTI catches aggressive bids during the Asian session in reaction to fresh US strikes on Iran.
In response, Iran's IRGC targeted the US airbase and warned of a more decisive response.
A strong pickup in the USD demand might cap the commodity ahead of the US macro data.

Haresh Menghani FXStreet

West Texas Intermediate (WTI) – the benchmark US Crude Oil price – gains some positive traction during the Asian session on Thursday and recovers a major part of the previous day's losses to its lowest level since April 21. The commodity touches a fresh daily high in the last hour and is now looking to extend gains beyond the $91.00 mark amid the risk of a further escalation of the Middle East conflict.

Reuters reported fresh US strikes overnight on an Iranian military site that officials believed posed a threat to American forces and commercial maritime traffic in the Strait of Hormuz. Adding to this, Tasnim news agency reported that Iran's Islamic Revolutionary Guard Corps (IRGC) said it targeted the US airbase in response to an attack near Bandar Abbas airport and warned that any further US attacks would trigger 'a more decisive' response. This keeps geopolitical risk premium in play and assists Crude Oil prices in attracting fresh buyers.

Meanwhile, US President Donald Trump said that he is not satisfied with the terms of the deal negotiated with Iran and that he won’t be rushed into a deal, dampening hopes for a diplomatic solution to end a three-month-old war. Moreover, shipping traffic through the strategic Strait of Hormuz remains limited due to Iran's restrictions on movements and the US naval blockade of Iranian ports. Adding to this, data by the American Petroleum Institute showed that US stockpiles fell for the sixth straight week, lending additional support to Crude Oil prices.

The aforementioned fundamental backdrop seems tilted in favor of bullish traders and validates the near-term positive outlook for the black liquid. However, a strong pickup in the US Dollar (USD) demand, which tends to undermine demand for the USD-denominated commodities, could cap further gains. Traders now look forward to the release of the US Personal Consumption Expenditures (PCE) Price Index and the Prelim US Q1 GDP report for a fresh impetus later during the North American session.

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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