WTI slips below $91.00 amid rising US-Iran peace hopes

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West Texas Intermediate (WTI) oil price continues its losing streak for the fourth successive day, declining by nearly 5.5% and trading around $90.80 per barrel during the Asian hours on Monday. Crude oil prices drop on easing supply fears due to rising optimism over a potential US-Iran agreement.

WTI falls as supply fears ease on growing optimism surrounding a potential US-Iran agreement.
The US and Iran are reportedly close to signing an agreement involving a 60-day ceasefire extension.
Reopening the Strait of Hormuz would further lower oil prices and relieve Asian economies.

Axios reported a US official saying that the United States (US) and Iran are close to signing an agreement that involves a 60-day ceasefire extension. Under this proposed deal, the Strait of Hormuz would be reopened, and Iran would agree to clear mines it deployed in the waterway while allowing ships to pass freely. In exchange for these actions, the United States would lift its current blockade on Iranian ports.

Reopening the Strait of Hormuz would significantly relieve major Asian economies and sharply lower oil prices, as the waterway handles about one-fifth of global oil and liquefied natural gas shipments. Previously, the conflict and a dual blockade severely disrupted energy markets, forcing Middle Eastern producers to halt millions of barrels of daily crude output.

However, a Reuters report, citing Iran’s Tasnim news agency, states that the US government is still obstructing certain clauses of the agreement to end the conflict, specifically regarding the release of blocked Iranian assets. Further tempering immediate expectations, US Secretary of State Marco Rubio informed the New York Times that while an agreement with Iran has garnered regional support, a comprehensive nuclear deal could not be achieved quickly or carelessly.

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.