WTI rebounds sharply on fears of renewed escalation in US-Iran war
- The Oil price recovers strongly to near $83.20 on Wednesday due to multiple tailwinds.
- Houthis mull fees on ships using the Southern Red Sea route.
- US-Saudi joint military operation against Iran-aligned Houthis helped Oil prices snap a three-day losing streak.
West Texas Intermediate (WTI) futures on NYMEX trades 6% higher on the day, slightly above $83.00 during the European trading session on Wednesday. The Oil price bounces back strongly after snapping a three-day losing streak amid fears of a prolonged energy supply squeeze due to Iran’s intentions to bring a toll system into effect at various chokepoints around the Middle East.
During the day, a report from Reuters showed that Yemen's Houthis are considering imposing fees on commercial ships sailing through the Southern Red Sea. Houthis are mulling a toll system on Bab el-Mandeb Strait, gateway to almost 7% of the global oil supply, which was hijacked by them last week.
With Iran being prevented from imposing tolls in the Strait of Hormuz, a vital passage to almost 20% of the global energy supply, by the United States (US) and other Middle East nations, Houthis' move to implement a toll system on another key shipping route could result in a fresh escalation in military aggression between both nations. Such a scenario would increase fears of prolonged energy supply disruption.
The Oil price was already opened significantly higher as the joint military operation by Saudi Arabia and US Central Command (CENTCOM) on Iran-aligned Houthis in Iraq in retaliation for attacks on Saudi energy facilities in the Eastern Province and Riyadh regions, Al Jazeera reported.
Analysts at Rabobank said in a note, "The Saudi-US retaliation for strikes on Saudi oil infrastructure underscored how the evolving cycle of attacks and counterattacks is keeping a firm bid under crude benchmarks."
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
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
