WTI Oil extends losing streak as resilient Saudi exports outweigh Middle East risk premium
- WTI Oil falls more than 3% on Monday, extending its retreat from last week’s highs.
- Stronger Saudi Arabian crude exports ease concerns about potential supply disruptions.
- Persistent tensions in the Middle East maintain a geopolitical risk premium in Oil prices.
West Texas Intermediate (WTI) US Oil extends its decline for the fourth consecutive day on Monday, trading around $91.90 per barrel at the time of writing, down 3.54% on the day. Crude prices remain under selling pressure as signs of resilient Saudi Arabian supply ease fears of major disruptions, outweighing the geopolitical risk premium linked to the prolonged conflict in the Middle East.
Reports of stronger Saudi Arabian Oil exports are helping calm concerns that regional tensions could significantly restrict global supply. CNBC, citing JPMorgan, reported on Saturday that Saudi crude flows remain “surprisingly strong” despite disruptions to the East-West pipeline.
Saudi Arabia also expects the East-West pipeline to recover around half of its capacity within days after a drone attack forced its shutdown. The prospect of a relatively rapid recovery in infrastructure, combined with stronger shipments, reduces immediate concerns about the availability of Saudi crude and weighs on WTI Oil prices.
Supply concerns are also easing around the Strait of Hormuz, a strategic route for global energy markets. United States (US) Central Command (CENTCOM) Commander Admiral Brad Cooper said on Sunday that Oil shipments through the waterway reached their highest level in six months during the past two weeks, supported by US naval protection and mine-clearing operations.
The improvement in crude flows contrasts with persistent geopolitical uncertainty across the Middle East. Iran-backed Houthi forces in Yemen launched a missile and drone attack on the Saudi Arabian capital Riyadh, while tensions between the United States (US) and Iran remain elevated as the conflict approaches its seventh month without a resolution.
The geopolitical backdrop therefore continues to provide some support to Crude Oil prices by preserving the risk of renewed supply disruptions. For now, however, evidence that Saudi exports and shipments through the Strait of Hormuz remain resilient is reducing immediate fears of shortages and keeps WTI Oil under pressure at the start of the week.
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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