West Texas Intermediate (WTI) US Oil prices are falling sharply on Wednesday and are trading around $91.00 at the time of writing, recording a daily decline of 8.91% as markets rapidly reassess geopolitical risks in the Middle East following Axios reports suggesting significant progress between the United States (US) and Iran.
According to Axios, Washington and Tehran are close to reaching a memorandum of understanding aimed at ending the conflict and opening a broader period of negotiations on Iran’s nuclear program. Discussions reportedly include a gradual lifting of restrictions around the Strait of Hormuz, an Iranian moratorium on nuclear enrichment, and an easing of US sanctions along with the release of billions of dollars in frozen Iranian funds.
The US news outlet added that the White House expects Iran to respond on several key issues within the next 48 hours. A Pakistani source involved in the diplomatic efforts also confirmed to Reuters that the two sides were “very close” to finalizing an agreement.
These events have triggered a acute risk shift in financial markets and led to a acute decline in oil prices as investors quickly moderate the geopolitical risk premium associated with potential supply disruptions.
The Strait of Hormuz remains a strategic choke point for the global energy market, with roughly one-fifth of global oil flows passing through it. A sustained improvement in the situation in the region mechanically reduces concerns about disruptions in oil exports.
The bearish move gained momentum after U.S. President Donald Trump announced that “Project Freedom,” an operation aimed at fully restoring commercial shipping through the Strait of Hormuz, would be temporarily halted to allow diplomatic negotiations to continue. U.S. Defense Secretary Pete Hegseth also said the U.S.-Iran ceasefire “is certainly in place for now,” while emphasizing that Washington is not seeking another escalation.
The decline in oil prices comes despite the market’s still tense physical fundamentals. The American Petroleum Institute (API) reported on Tuesday that U.S. crude inventories fell by 8.1 million barrels last week, well above the consensus stockpile level of 2.8 million barrels. Goldman Sachs also warned that global crude oil inventories are nearing an eight-year low.
However, in the brief term, markets are clearly focused on improving the geopolitical outlook, given that a potential agreement between the United States and Iran could gradually normalize energy flows in the region and mitigate supply risks for global markets.
Frequently asked questions about WTI crude oil
WTI Oil is a type of crude oil sold on international markets. WTI stands for West Texas Intermediate, one of three main types, including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” due to its relatively low weight and low sulfur content. It is considered a high-quality oil that can be easily refined. It originates in the United States and is distributed through the Cushing Junction, considered the “Crossroads of the World.” It is a reference point for the crude oil market, and the WTI price is often quoted in the media.
Like all assets, supply and demand are key factors influencing the price of WTI crude oil. Therefore, global growth may drive increased demand and, conversely, frail global growth. Political instability, wars and sanctions can disrupt supply and affect prices. Another key factor shaping prices are the decisions of OPEC, the group of major oil-producing countries. The value of the US dollar affects the price of WTI crude oil because oil is mainly sold in US dollars, so a weaker US dollar can make oil more affordable and vice versa.
Weekly crude oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Administration (EIA) influence the price of WTI crude oil. Inventory changes reflect fluctuations in supply and demand. If the data shows a decline in inventories, it may indicate increased demand, which will result in an enhance in the price of oil. Higher inventories may reflect increased supply, which causes prices to fall. The API report is published every Tuesday and the EIA report the next day. Their results are usually similar and are within 1% of each other 75% of the time. EIA data is considered more reliable because it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 oil-producing countries that jointly decide on production quotas for member countries at meetings held twice a year. Their decisions often influence the prices of WTI crude oil. When OPEC decides to cut quotas, it can tighten supply, which will push up oil prices. OPEC increasing production has the opposite effect. OPEC+ refers to an expanded group that includes ten additional non-OPEC members, the most notable of which is Russia.
