WTI declines despite rising US-Iran tensions threaten
- Oil supply risks could drive prices amid rising US-Iran tensions.
- US President Trump expects the conflict and high gasoline prices to persist past November.
- Houthi strikes on Saudi energy facilities have temporarily suspended regional operations.
West Texas Intermediate (WTI) oil price depreciates after three days of gains, trading around $93.90 during Asian hours on Thursday. However, oil prices may soon regain ground as an intensifying conflict between the United States and Iran raises serious concerns over potential disruptions to energy supplies from the Middle East. Signaling that a resolution is far off.
Iran stated that it is ready for a more intense conflict, vowing to resist the US naval blockade and warning that it will step up attacks if American forces continue their strikes on Iranian territory.
Meanwhile, US President Donald Trump predicted that the conflict will likely persist past the November midterm elections, noting that significant relief in gasoline prices is unlikely before then and signaling limited prospects for near-term de-escalation.
Hostilities have rapidly escalated over the past week following roughly a month of relative calm, with both nations stepping up attacks. The geopolitical crisis further broadened after Iran-backed Houthi militants launched strikes on several energy facilities in Saudi Arabia, which prompted the temporary suspension of some operations in the region.
Oil bid as conflict-driven supply risks keep market tight
According to strategists at TD Securities, crude prices continue to push higher as geopolitical tensions show little sign of easing, with "crude rallies with seemingly no end to conflict in sight." They argue that "another round of escalation and an apparent preference for limited attacks and economic squeeze as opposed to deal-making leaves the energy market on a continued tightening trajectory," reinforcing the view that ongoing conflict dynamics are keeping supply risks elevated and the balance of risks for Oil skewed to the upside.
WTI Oil FAQs
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.
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.
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.
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.