WTI rises nearly 2% on Strait of Hormuz closure, shaky peace talks

Dhwani Mehta FXStreet

West Texas Intermediate (WTI) – the US oil benchmark – opened Monday’s Asian trading with an over $1 bullish gap, retesting the $78 mark, nearly up 2% in early dealings.

The black gold is still up 1.15%, as of writing, holding above $77 as oil supply concerns resurface after Iran closed the Strait of Hormuz again on Saturday in response to the renewed hostilities by Israel in Lebanon.

US President Donald Trump verbally threatened to strike Tehran ‘harder’ following the Strait of Hormuz closure and against the Iran-backed militant group – Hezbollah - in Lebanon.

In protest to Trump’s threats, Iranian negotiators walked out of the high-stakes talks with the US in Switzerland, raising concerns about the resumption of the peace negotiations between both sides.

Iran and the US last week signed a memorandum of understanding (MoU) designed to lift the blockade on the Strait of Hormuz, leading to 60 days of talks on Iran’s civil nuclear programme.

Looking ahead, all eyes remain on the US-Iran headlines, which could significantly influence the Oil price action, especially if Israel continues to strike Lebanon.

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

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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