US signals SPR swaps amid Hormuz tension, Oil prices remain supported

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In interviews with CNBC and CNN reported by Reuters, US Energy Secretary Chris Wright said that any release of Oil from the Strategic Petroleum Reserve (SPR) would likely take the form of swaps, designed to address short-term supply disruptions without direct costs to taxpayers.

The US signals it may release Strategic Petroleum Reserve Crude through swaps to ease short-term supply disruptions.
Washington says military operations could last weeks, while naval escorts for vessels may be possible later this month.
Oil prices remain supported amid escalating tensions around Iran and risks to shipping through the Strait of Hormuz.

The remarks come amid rising tensions involving Iran and renewed concerns about the security of the Strait of Hormuz, a key maritime chokepoint for global Oil flows. Wright stressed that reopening the strait is a priority and warned that Iran’s ability to threaten regional shipping must ultimately be neutralized.

According to the Energy Secretary, any military operation related to the crisis would likely take weeks rather than months. He also indicated that US naval escorts for commercial vessels are not currently in place, although such measures could become possible before the end of the month.

Wright added Oil markets in the Western Hemisphere are “not really tight” compared with Asia.

Market reaction

The comments didn’t get significant market attention. West Texas Intermediate (WTI) US Oil surges on Thursday, gaining 5.10% and trading around $91.75 per barrel at the time of writing.

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.