WTI rally takes a timeout amid signs of US-Iran war de-escalation

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West Texas Intermediate (WTI) Oil futures on NYMEX trade slightly lower to near $71.50 during the European trading session on Friday. The Oil price extends its correction after posting a fresh over two-week high at $75.73 on Wednesday.

The Oil price corrects further amid hopes that the renewed war between US and Iran won’t last long.
A US official confirms that technical talks with Iran are intact.
The Fed is highly anticipated to deliver at least one interest rate hike this year.

The black gold has come under pressure amid signs of de-escalation in the restart of the war between the United States (US) and Iran.

Earlier in the day, a US official confirmed that technical talks with Iran continued, despite President Donald Trump declaring that the memorandum of understanding (MoU) with Tehran is over.

US President Trump also said late Wednesday that he had a conversation with Iran, adding that the nation wants the deal badly. However, he doesn’t believe that Iran would honor the deal, CNBC reported.

Meanwhile, the downside in oil prices will likely remain limited, as the exchange of attacks between the US and Iran are still going on. Late Thursday, the Iranian state media confirmed US forces striking several more locations in coastal Iran. However, the US military forces have not confirmed the same. The scenario of continuing US-Iran aggression would keep fears of energy supply disruption intact.

On the demand front, fears of interest rate hikes by global central banks would likely keep the overall oil demand battered. The CME FedWatch tool shows that the odds of the Federal Reserve (Fed) delivering at least one interest rate hike this year are marginally over 80%.

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.