WTI Oil nears pre-war levels below $70 as Gulf supply fears ease
- WTI falls to $69.70, its lowest level since the start of the Israel-Iran conflict in early March.
- Rising traffic through the Strait of Hormuz fuels expectations of a gradual recovery in Gulf Oil flows.
- Markets are also pricing in a potential increase in Iranian supply following the temporary easing of US sanctions.
West Texas Intermediate (WTI) US Oil extends its sharp decline on Wednesday, trading around $69.70, down 4.40% on the day at the time of writing and hitting its lowest level since March 2. The US Crude benchmark has now erased much of the geopolitical risk premium built up since the outbreak of the Israel-Iran war and is moving closer to pre-conflict levels around $67.
Selling pressure intensified as concerns about prolonged disruptions to Gulf energy exports continued to fade. Maritime tracking data showed an increase in the number of vessels crossing the Strait of Hormuz, signaling a gradual normalization of trade flows, although traffic remains below pre-conflict levels.
Meanwhile, diplomatic efforts regarding the future of the Strait of Hormuz continue to advance. Qatar and Oman have launched an initiative aimed at bringing together Iran, Gulf states and Iraq to establish a long-term framework for managing the strategic waterway. Gulf countries are expected to defend the principle of free transit, while Tehran may propose fees related to security, navigation and environmental protection.
Bearish sentiment was also reinforced by the US decision to grant a temporary 60-day waiver allowing international buyers and American refiners to legally resume purchases of Iranian Crude Oil. The move has boosted expectations of higher global Oil supply in the coming weeks.
However, several analysts argue that the sell-off may be overdone. Analysts at ING note that Oil volumes currently moving through the Strait of Hormuz remain well below pre-conflict levels, adding that the Oil market continues to show signs of tightening despite improving logistical conditions. Meanwhile, analysts at TD Securities point out that floating Crude inventories in the Gulf have declined sharply in recent weeks, which could limit the ability to sustain current flow rates over the longer term.
Investors are also monitoring developments in negotiations between Washington and Tehran over nuclear inspections. US President Donald Trump stated that Iran had agreed to allow inspectors from the International Atomic Energy Agency (IAEA) to return, while Iranian officials said that no timetable had yet been established, leaving uncertainty over the durability of the ceasefire agreement.
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.