WTI struggles to hold above $76 on hopes of de-escalating Middle East conflict

The Oil price struggles to stabilize above $76.00 amid signs of de-escalation in the Middle East war.
Iran expresses willingness to abandon its nuclear plans, according to media.
Global central banks might delay their monetary easing plans amid rising oil prices.

Sagar Dua FXStreet

West Texas Intermediate (WTI), futures on NYMEX, are up 2% to near $76.00 during the European trading session on Thursday. The Oil price trades firmly but struggles to stabilize above the $76.00 hurdle due to signs of de-escalation in conflicts between the United States (US), Israel, and Iran.

The oil price has rallied significantly in the past few trading days as heightened military activity near the Strait of Hormuz due to the ongoing war has dampened the overall supply mechanism.

Hopes of de-escalation in Middle East conflicts have been invoked by a report from Sky News Arabia claiming that Iran is willing to abandon its ambitions of building nuclear infrastructure if Washington offers a rewarding offer.

“Iran is ready to abandon its nuclear program on the condition that the US presents a rewarding alternative offer,” Iranian Deputy Foreign Minister Saeed Khatibzadeh said, Sky News Arabia reported.

The initial reaction to the oil price after the news flash was negative, but it has recovered those losses and is holding onto intraday gains.

Meanwhile, rising energy prices due to oil supply disruption have prompted fears of high inflation across the globe, a scenario that will likely discourage central banks from easing their monetary policy conditions. Such a scenario is theoretically unfavorable for the oil price.

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

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.

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