At the time of writing, West Texas Intermediate (WTI) is trading around $75.70, representing a loss of 0.22% on the day. After four consecutive days of hefty losses, U.S. crude oil is showing signs of stabilizing, although slightly lower at press time than today, as investors continue to assess the impact of the upcoming U.S.-Iran deal on global supply prospects.
Markets remain focused on an interim agreement due to be signed in Switzerland on Friday between Washington and Tehran. The agreement is expected to pave the way for a rapid resumption of Iranian crude oil exports and support a gradual recovery of ship flows through the Strait of Hormuz. Shipping data already shows several Iranian tankers have resumed operations this week, reinforcing expectations of increased global supply in the coming months.
Better supply prospects weighed on benchmarks for Middle Eastern crude. Recently, the Dubai Crude price fell into contango for the first time since January, and the Oman and Murban spot price differentials also moved into discount territory. This change is generally seen as a sign of more comfortable supply conditions in the near future.
However, several market observers say it may take longer than expected to fully normalize physical flows. While diplomatic progress is gradually removing the geopolitical risk premium built into oil prices, a complete recovery of shipping activity in the region remains uncertain.
Analysts from Société Générale note that the normalization process after the US-Iran agreement is uneven depending on various market indicators. According to the bank, Brent oil prices, implied volatility and options markets do not reflect the same degree of normalization, suggesting that investors continue to price in residual risk.
Meanwhile, MUFG argues that the recent decline in oil prices has significantly reduced short-term inflation risks. The bank believes that a edged decline in oil prices could provide the Federal Reserve (Fed) with additional flexibility in making monetary policy decisions, even while policymakers remain cautious on the U.S. economic outlook.
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, delicate 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.
