WTI rebounds from two-week low, well bid around mid-$81.00s amid Iran risks

WTI catches aggressive bets in reaction to Iran’s ballistic missile attacks on US forces.
Trump warned that military operations could resume if negotiations with Iran collapse.
Supply disruption worries remain in play and lend additional support to crude oil prices.

Haresh Menghani FXStreet

West Texas Intermediate (WTI) – the benchmark US Crude Oil price – gains strong positive traction during the Asian session on Wednesday, snapping a three-day losing streak to an over two-week low touched the previous day. The commodity currently trades around mid-$81.00s, up nearly 4% for the day, amid the risk of resumption of US-Iran hostilities.

In the latest developments surrounding the Middle East crisis, Iran's Islamic Revolutionary Guard Corps (IRGC) launched multiple ballistic missiles at US forces in the Middle East on Tuesday. Meanwhile, US President Donald Trump reiterated a warning that military operations could resume if negotiations with Iran collapse. Speaking to Fox News, Trump said that the US will target key Iranian infrastructure, major bridges, and power plants if Tehran fails to reach an agreement.

Separately, Central Command said the US military and Saudi Arabian forces conducted joint strikes “against Iran-aligned terrorists” in Iraq. This marks a fresh escalation of tensions in the region, which, along with the US-Iran standoff over the Strait of Hormuz, prompts traders to price in a geopolitical risk premium and triggers a goodish recovery in crude oil prices. In fact, shipping traffic through the strategic waterway fell sharply after Iran targeted several vessels earlier this month.

Adding to this, the Iran-backed Houthis recently opened a new front in the five-month-old US-Iran war and announced a naval blockade on Saudi Arabia in the Red Sea. This adds to market concerns about significant disruptions to global oil supplies and turns out to be another factor supporting crude oil prices. Moreover, a softer US Dollar (USD) offers some support to USD-denominated commodities and backs the case for additional gains as the focus remains on the FOMC policy decision.

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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