WTI Oil drops below $80 amid hopes of Hormuz reopening, US-Iran de-escalation
- Oil prices drop for the third consecutive day, with the barrel of WTI crude falling below $80.
- News that Iran and Oman are working on a plan for a temporary reopening of the Strait of Hormuz is weighing heavily on prices.
- EIA Crude Oil inventories are expected to have increased for the fourth consecutive week.
Crude prices extend their reversal on Wednesday, with the US benchmark West Texas Intermediate (WTI) trading at the $79.50 area as of writing, highlighting a 9% decline from last week’s highs above $87.00. News reporting contacts between Iran and Oman to reopen the Strait of Hormuz and some de-escalation of the US-Iran conflict are weighing heavily on prices.
Oman News Agency reported on Tuesday that Oman and Iran are holding technical talks to define a permanent maritime corridor, while the Omani foreign minister affirmed that he was ·hopeful” that a temporary route through the key maritime corridor will be announced soon. Tehran, however, has reiterated that the US must lift its naval blockade of Iranian ports before free transit through Hormuz is allowed.
Softer US measures weigh on prices
A new package of US sanctions against Iran has failed to halt Oil's decline. Investors assess that these measures confirm that the US is looking for alternative ways to push Iran to the negotiating table, sending the military option to the background, which has been welcomed by the market.
Strategists at Danske Bank affirm that Washington's latest steps to "intensify economic pressure on Iran" turned out "less aggressive than markets had expected," with the US notably "stopping short of imposing secondary sanctions on Iran's trading partners."
Later in the day, the US Energy Information Administration (EIA) is expected to release its weekly Crude Oil Stocks Change report, which is expected to show a 1.9 million barrel buildup in the week of August 21. These figures would follow a 4.4 million increase in the previous week, posting the fourth consecutive increment in crude stocks and easing concerns about an Oil shortage for now.
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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