WTI remains heavily offered near $84.00 amid hopes for de-escalation in US-Iran conflict
- WTI opens with a big bearish gap on Monday amid renewed hopes for US-Iran diplomacy.
- Shipping restrictions through the Bab el-Mandeb Strait and the Strait of Hormuz limit losses.
- The mixed fundamental backdrop warrants caution before placing aggressive bearish bets.
West Texas Intermediate (WTI) – the benchmark US Crude Oil price – opens with a bearish gap at the start of a new at the start of a new week and retreats further from its highest level since June 8, around the $92.25 zone, touched last Thursday. The black liquid, however, recovers slightly from a four-day trough, touched during the Asian session, and currently trades near the $84.00 mark, still down nearly 6% for the day.
The US paused its bombing campaign following 13 consecutive nights of strikes on Iranian targets late on Friday, prompting Tehran to suspend its retaliatory attacks against Washington's allies in the Middle East. US ambassador to the United Nations (UN) Mike Waltz said that while forces remained locked and loaded, President Donald Trump wants to give negotiations a little bit of room. This revives hopes for a diplomatic resolution to end a five-month-old US-Iran conflict, leading to some unwinding of the geopolitical risk premium and exerting pressure on crude oil prices.
Meanwhile, traffic through Bab el-Mandeb fell on 26 July after Iran-backed Houthis in Yemen attacked Saudi oil installations along the coast of the Red Sea. This adds to concerns about significant disruptions to global oil supplies due to the restricted transit through the Strait of Hormuz, which holds back traders from placing aggressive bearish bets and limits the downside for crude oil prices. Investors might also opt to wait for further developments surrounding the Middle East crisis before confirming that the commodity has topped out and positioning for deeper losses.
Analysts at Rabobank’s RaboResearch Global Economics & Markets team highlight that crude benchmarks have surged on renewed supply concerns, noting that “Brent, WTI, and refined products rallied sharply as Hormuz disruptions, intensified Russia-Ukraine strikes, CPC terminal outages, and record-tight diesel markets renewed fears of a broader supply crunch.” They frame these overlapping disruptions as reigniting worries over the durability of global oil supply, with the combination of geopolitical flashpoints and logistical bottlenecks driving the latest leg higher in the complex.
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
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
