WTI sticks to positive bias above $92.00 amid Middle East tensions

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West Texas Intermediate (WTI) – the benchmark US Crude Oil price – fades an Asian session spike to the $95.80-$95.85 area, or a one-and-a-half-week top, and retreats to the lower end of its daily range in the last hour.

WTI attracts buyers for the third straight day and jumps to a nearly two-week high.
Hormuz risks counter the US-Iran ceasefire extension and support the black liquid.
The fundamental backdrop favors bulls and backs the case for further appreciation.

Despite a temporary extension of the US-Iran ceasefire, traders remain sceptical about a durable de-escalation amid the lack of progress in peace talks. Moreover, rising conflict over the Strait of Hormuz continues to fuel worries about prolonged disruptions through the strategic waterway. This keeps geopolitical risks premium in play and continues to push Crude Oil prices higher for the third straight day.

US President Donald Trump reiterated on Tuesday that the US Navy blockade of Iranian ports will continue. Adding to this, Iran's semi-official Tasnim news agency reported that Iran’s Revolutionary Guards Navy seized two vessels and that at least three container ships were hit by gunfire in the Strait on Wednesday. This, along with a surprise draw in US crude stockpiles, offers additional support to Oil prices.

Meanwhile, the latest leg of a sharp move higher comes on the back of fake news of an attack on Tehran. The momentum fizzles out rather quickly in the absence of any major developments. This, in turn, warrants some caution for bullish traders and positioning for any further appreciation. The fundamental backdrop, however, suggests that the path of least resistance for Crude Oil prices remains to the upside.

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.