WTI retreats as markets downplay Hormuz strike risk, await US jobs report

WTI drops on Friday despite renewed strikes near the Strait of Hormuz.
Donald Trump says the ceasefire with Iran remains in place and describes the strikes as just a "love tap."
Investors now await the US employment report for fresh clues on the Fed’s monetary policy outlook.

Ghiles Guezout FXStreet

West Texas Intermediate (WTI) US Oil declines to around $92.00 on Friday at the time of writing, down 2.76% on the day, as markets reduce the geopolitical risk premium in the Middle East. The pullback in Oil prices comes despite renewed military tensions between the United States (US) and Iran, with investors currently favoring the scenario of a continued ceasefire between the two countries.

Market sentiment improved after comments from US President Donald Trump, who said in an interview with ABC News that the strikes exchanged on Thursday near the Strait of Hormuz did not signal a resumption of the war. “It’s just a love tap,” Trump said, adding that the ceasefire remains fully in effect. However, the US president reiterated that Washington could strike Iran again if Tehran refuses the terms of a potential agreement.

Traders are also monitoring diplomatic discussions surrounding the US proposal aimed at reopening the Strait of Hormuz and ending the war. According to several media reports, the United States is still awaiting an official response from Iran regarding the memorandum of understanding delivered by Washington, which includes restrictions on Tehran’s nuclear ambitions.

Despite this renewed optimism, tensions remain elevated in the region. Iranian officials accused the United States of violating the ceasefire after strikes targeting ships near the Strait of Hormuz and certain civilian areas. Meanwhile, the US Central Command stated that it had responded to Iranian attacks against several US destroyers transiting through the area.

Moves in the Oil market remain particularly volatile. Rabobank analysts noted that Oil prices continue to react sharply to every new headline coming from Washington, amid thin liquidity conditions and algorithm-driven trading activity. The bank also argued that the recent decline in Brent Oil from highs near $115 appears premature given the persistent risks surrounding the Strait of Hormuz.

Investors now await the release of the US May employment report, including the Nonfarm Payrolls (NFP) data, scheduled for 12:30 GMT. The figures could influence expectations for the Federal Reserve’s (Fed) monetary policy outlook, as markets continue to assess the impact of the US economic slowdown on global energy demand.

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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