WTI trades with positive bias below mid-$79.00s on Iran uncertainty, supply concerns

WTI gains some positive traction on Tuesday amid the uncertainty over US-Iran peace talks.
The US-Iran standoff over the Strait of Hormuz fuel supply concerns and also lends support.
The lack of follow-through buying warrants caution before placing aggressive bullish bets.

Haresh Menghani FXStreet

West Texas Intermediate (WTI) – the benchmark US Crude Oil price – edges higher during the Asian session on Tuesday and looks to build on the overnight bounce following an intraday slump to levels below mid-$77.00s. The commodity currently trades around the $79.40 region, up 0.75% for the day, though it lacks bullish conviction amid the uncertainty over the ongoing war in the Middle ‌East.

In the latest developments, Iran said on Monday there were no talks underway with the US, and there is no plan for any meetings. This contradicted US President Donald Trump, who has cited resumption of negotiations as justification for calling off attacks over the weekend. Moreover, unconfirmed reports of drone strikes on US assets in Kuwait temper hopes for a potential US-Iran peace deal, prompting traders to price in the geopolitical risk premium and offering some support to crude oil prices.

Meanwhile, Mohsen Rezaee, a senior military adviser to Iran's Supreme Leader, said that Tehran will not permit any shipping route through the strategic waterway other than the one designated by the Islamic Republic. Rezaee further warned that US vessels and forces could face serious risk and casualties if the current standoff over the strategic waterway continues. Adding to this, the Iran-backed Houthi rebels' naval blockade against Saudi Arabia further raises concerns regarding global energy supplies.

Rabobank’s Benjamin Picton characterises the recurring tensions around the Strait of Hormuz as a kind of “Groundhog Day” for markets, warning that “later in the week strikes typically resume, oil prices rally, equities sell, and bond yields rise.” He cautions that there is “every chance of that happening this week,” even though, for now, the prevailing impression is one of “‘strikes for strikes’,” with investors wary that the familiar pattern of renewed action and risk-off moves could yet reassert itself.

This largely overshadows the OPEC+ decision on Sunday to raise production from September and acts as tailwind for crude oil prices. The lack of strong follow-through buying, however, warrants some caution before placing fresh bullish bets on the commodity and positioning for any meaningful appreciation.

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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