WTI holds above $78.00 amid escalating Middle East tensions
|- WTI price jumps above $78.00 in Thursday’s early Asian session.
- Rising Middle East tensions and falling US inventories boost the price of WTI.
- The weaker demand in China might cap the WTI’s upside.
West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $78.00 on Thursday. WTI price edges higher amid the fear of wider geopolitical risks after the assassination of a Hamas leader in Iran, and a sharp fall in US crude inventories.
Oil traders assessed the impact after the killing of a Hamas leader in Iran. Ismail Haniyeh was killed in Iran's capital after attending the new president's inauguration, the militant group said. Iranian officials and Hamas have blamed Israel for the strike that killed Haniyeh, per the CBS News. This headline raises concerns about unstable oil supply, which underpins the WTI price.
"Overnight developments and elevated geopolitical risk merely provide temporary reprieve for oil benchmarks. Unless oil and gas infrastructure is hit, the latest spike is unlikely to last,” Gaurav Sharma, an independent oil analyst, told Reuters.
US crude oil stocks fell for a fifth consecutive week, the longest streak of drawdowns since January 2021. Crude oil stockpiles in the United States for the week ending July 26 fell by 3.436 million barrels to 433 million barrels. The market consensus estimated that stocks would decline by 1.6 million barrels, according to the Energy Information Administration (EIA) on Wednesday. This figure was 1.5% lower than a year ago and 4% below their five-year average.
Furthermore, the Federal Reserve (Fed) kept its key interest rate at 5.25% to 5.50% at its July meeting on Wednesday. During the press conference, Fed Chair Jerome Powell stated that a rate cut in September is “on the table, adding that the US labor market will be closely watched. Rising expectations for September rate cuts might weigh on the US Dollar (USD) and provide some support to the USD-denominated WTI.
On the other hand, the weaker demand and sluggish economy in China might cap the upside for the WTI as China is the top largest consumer of oil in the world. China's Manufacturing Purchasing Managers' Index (PMI) declined for a third month, the National Bureau of Statistics (NBS) reported on Wednesday. The Chinese NBS Manufacturing PM declined to 49.4 in July from 49.5 in June, below the 50-mark separating growth from contraction. However, the figure was above the market consensus of 49.3.
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 13 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.
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