WTI weakens below $93.00 mark, eyes weekly low despite rising Middle East tensions

WTI attracts fresh sellers during the Asian session, though the downside potential seems limited.
Rising geopolitical tensions in the Middle East could support the commodity and help limit losses.
Reduced Fed rate cut bets underpin the USD, which might keep a lid on gains for the black liquid.

Haresh Menghani FXStreet

West Texas Intermediate (WTI) Crude Oil prices struggle to capitalize on the previous day's modest gains and meet with a fresh supply during the Asian session on Wednesday. The commodity is currently trading below the $93.00 mark, down over 2.5% for the day, and remains close to the weekly low, touched on Monday.

Sources citing American Petroleum Institute figures said that US crude inventories rose by 6.56 million barrels in the week ended March 13. This, in turn, prompts some selling around Crude Oil prices, though heightened geopolitical uncertainty stemming from ongoing conflicts in the Middle East and supply concerns might continue to act as a tailwind for the black liquid.

The US-Israel war on Iran is in its third week and has shown no clear signs of de-escalation. In fact, a senior Iranian official said that Iran’s new supreme leader rejected de-escalation offers conveyed by intermediary countries. This comes amid the closure of the Strait of Hormuz, which handles around 20% of global supply, and has led to severe disruption of energy trade.

Meanwhile, the US military targeted sites along Iran’s coastline near the Strait of Hormuz. Moreover, Iran's top security official, Ali Larijani, and the head of the paramilitary Basij force, Gholamreza Soleimani, were killed in Israeli air strikes on Tuesday. Iran's army chief Amir Hatami said that Tehran's response to the assassination will be decisive and regrettable.

This keeps geopolitical risks in play and might limit the downside for Crude Oil prices. The price action, however, suggests that market players have already fully priced in the current situation. Moreover, reduced bets for more rate cuts by the US Federal Reserve (Fed) underpin the US Dollar (USD) and warrant caution before placing bullish bets around Oil prices.

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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