WTI Oil climbs on Trump rejection of Iran peace plan, Hormuz closure fears
- WTI rises to around $94.70 on Monday, up 3.18% on the day after Donald Trump rejected Iran’s peace proposal.
- Fears of a prolonged closure of the Strait of Hormuz are supporting Oil prices and reviving concerns over global supply.
- Strong Chinese trade data boosts expectations of firmer energy demand from the world’s second-largest economy.
West Texas Intermediate (WTI) Oil posts strong gains on Monday, with the US benchmark trading around $94.70 at the time of writing, up 3.18% on the day after opening the week with a significant bullish gap. The Oil market is reacting to deteriorating prospects for a quick agreement between the United States (US) and Iran, which is reviving concerns about global energy supply.
The bullish move accelerated after US President Donald Trump described Tehran’s latest response to the US peace proposal as “totally unacceptable”. The statement reduced hopes for a lasting ceasefire and a swift reopening of the Strait of Hormuz, a strategic passage through which nearly 20% of the world’s Oil supply transits.
According to Iranian state media, Tehran is demanding financial compensation for war damages, the lifting of sanctions, and recognition of its authority around the Strait of Hormuz. At the same time, tensions remain elevated in the region following Iranian accusations regarding US attacks on Oil tankers over the weekend.
Comments from Israeli Prime Minister Benjamin Netanyahu also maintained geopolitical concerns, as he stated that the conflict would not end until Iran’s enriched uranium is eliminated, a condition rejected by Tehran.
Societe Generale analysts believe that a potential reopening of the Strait of Hormuz would not immediately translate into relief for global supply. The bank noted that the normalization of Oil flows and shipping traffic could take several weeks, thereby maintaining tensions in the physical Crude market.
On the macroeconomic front, the latest Chinese trade data is also supporting Oil prices. The figures released on Monday suggest improving activity in the world’s second-largest economy, fuelling expectations of stronger energy demand in the coming months.
However, prospects of a prolonged restrictive monetary policy stance from the Federal Reserve (Fed) could limit Oil’s upside potential. Strong recent US labor market data has reduced expectations of rapid interest rate cuts, an environment that could restrain consumption and fuel demand.
Reuters reported on Monday that Donald Trump said he wants to temporarily suspend the 18-cent federal gasoline tax, a move that could help ease pressure on consumers amid elevated fuel prices.
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.