WTI declines to near $64.00 despite elevated geopolitical risks
- WTI fell but remained on track for about 12% monthly gains, supported by elevated geopolitical risk premiums.
- Iran warned of unprecedented retaliation after fresh threats from President Trump over renewed nuclear talks.
- The Trump administration eased some sanctions on Venezuela’s Oil industry on Thursday to lure US investment.
West Texas Intermediate (WTI) Oil price depreciates after three days of gains, trading around $64.00 per barrel during the Asian hours on Friday. However, WTI stayed on track for roughly 12% monthly gains, underpinned by a rising geopolitical risk premium.
Geopolitical risks stayed elevated after Iran warned it would “defend itself and respond like never before” in reaction to fresh threats from US President Donald Trump, who urged Tehran to enter nuclear talks. Iran cautioned that it would retaliate if provoked.
Tensions intensified further after the European Union designated Iran’s Islamic Revolutionary Guard Corps as a terrorist organization. Adding to the strain, reports suggested the US was increasing its military presence near Iran, while Tehran announced live-fire military drills in the strategically critical Strait of Hormuz, amplifying concerns over regional security.
Markets are focused on how these tensions could affect shipping through the Strait of Hormuz, a vital chokepoint between Iran and the Arabian Peninsula through which crude Oil and LNG tankers transit daily. Westpac Strategy Group said regime change in Iran would likely be chaotic, unlike the US-led removal of Maduro or surgical strikes on Fordow, according to Dow Jones Newswires.
The Trump administration loosened some sanctions on Venezuela’s Oil industry on Thursday to attract US investment after President Nicolas Maduro was removed earlier this month. The US Treasury approved transactions involving Venezuela’s government and state-run PDVSA, enabling US companies to produce, sell, transport, and refine Venezuelan-origin Oil.
Earlier this month, Oil prices also found support from production outages in Kazakhstan, US freeze-offs, and tighter US curbs on Russian Oil purchases, helping lift prices this year despite expectations of oversupply.
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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