WTI slips below $81.50 amid Middle East diplomacy
- Diplomatic progress between Iran and Oman over the Strait of Hormuz helped ease supply disruption fears.
- Softer-than-expected US sanctions on Iran eased immediate market concerns, putting additional downward pressure on prices.
- Ongoing geopolitics, including potential Russian escalation in Ukraine, continues to keep long-term global energy risks in focus.
West Texas Intermediate (WTI) oil price depreciates after registering modest gains in the previous day, trading around $81.30 per barrel during the Asian hours on Thursday. Crude oil prices decline amid signs of diplomatic progress in the Middle East.
Iran and Oman reached an agreement over each country’s share of the Strait of Hormuz’s waters and related revenues, although Tehran cautioned that reopening the crucial waterway would require more than an agreement with Oman.
Meanwhile, US President Donald Trump said 10 million barrels of oil had passed through Hormuz on Tuesday, while reiterating claims that mines in the waterway had been cleared.
Oil prices have also come under pressure this week after fresh US economic sanctions on Iran proved less aggressive than markets had feared, with the White House so far sparing Iran’s trading partners from tougher measures.
Oil prices pared early losses after official data showed US crude inventories rose by less than expected last week. According to the Energy Information Administration (EIA), crude inventories increased by 95,000 barrels to 428.9 million barrels for the week ended August 21. This was significantly lower than the 597,000-barrel build analysts had forecasted in a Reuters poll.
Compounding market tightness, supply disruptions and geopolitical tensions mounted in Eastern Europe. Russia's fourth-largest oil refinery and second-largest gasoline producer, NORSI, suspended crude processing on Wednesday following a Ukrainian drone strike. Concurrently, Bloomberg News reported that Russia is considering escalating its ballistic missile strikes on Kyiv, including targets in the city center and critical infrastructure elsewhere, after Kremlin sources indicated that peace negotiation efforts have hit a dead end.
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.