WTI extends decline to pre-Middle East war levels around $69 as oil flows accelerate
- The Oil price slides further to near $69.00 as traffic through the Strait of Hormuz starts normalizing.
- Hawkish Fed bets are also hurting the oil price.
- The earthquake in Venezuela could offer support to the oil price.
West Texas Intermediate (WTI), futures on NYMEX, is down 0.7% to near $69.00 during the late Asian trading session on Thursday. The Oil price has returned close to the pre-Middle East war level, facing intense selling pressure in the past few weeks, as oil flows through the Strait of Hormuz, a critical chokepoint to almost one-fifth of global energy supply, have increased.
According to a Bloomberg’s report, more ships are openly signaling their intention to traverse the Strait of Hormuz, pointing to growing confidence among shipowners and traders about sending vessels through the chokepoint as tensions ease.
Also, the International Maritime Organization said it had received guarantees allowing hundreds of ships to exit the Persian Gulf.
Meanwhile, the International Energy Agency (IEA) has reported that the United Arab Emirates (UAE) is exporting oil at nearly 85% of pre-war levels.
Apart from the increased oil supply, firm expectations that the Federal Reserve (Fed) will raise interest rates this year are also acting as key drag on the Oil price. The CME FedWatch tool shows that the odds of the Fed hiking interest rates this year are almost 82%. While the possibility of at least two interest rate hikes is 42.2%.
Going forward, the earthquake in Venezuela, resulted in serious damage to infrastructure, could slightly impact the global oil price. The oil from Venezuela has lately become a significant driving factor for the oil supply, as the United States (US) is now controlling its energy resources and marketing to global world after abducting Venezuelan President Nicolás Maduro.
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.
Nothing in this material constitutes investment advice, personal recommendation, investment research, an offer, or a solicitation to buy or sell any financial instrument. The content has been prepared without consideration of your individual investment objectives, financial situation, or needs, and should not be treated as such.
Past performance is not a reliable indicator of future performance and/or results. Forward-looking scenarios or forecasts are not a guarantee of future performance. Actual results may differ materially from those anticipated.
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