WTI seems vulnerable above two-week low around $64 on Israel-Iran ceasefire
- WTI Oil price trades cautiously near the two-week low around $64.00 after the Israel-Iran truce.
- The truce between Israel and Iran eases risk of the closure of Strait of Hormuz.
- Fed’s Powell supported to keep interest rates at their current levels amid uncertainty surrounding the Trump’s tariff policy.
West Texas Intermediate (WTI), futures on NYMEX, appears vulnerable near the two-week low around $64.00. The Oil price seems to witness more downside as the announcement of a truce between Israel and Iran has eased global supply risks.
On Tuesday, United States (US) President Donald Trump announced a ceasefire between Israel and Iran and urged them not to violate. Following the ceasefire, Israeli Prime Minister Benjamin Netanyahu warned its defence forces will respond forcefully if Iran violates the truce.
Apparently, the Israel-Iran truce eased fears of the closure of Strait of Hormuz, a passage from which almost a quarter of global Oil is supplied. The Oil price on the NYMEX rallied to near the $76 mark on Monday after Iran threatened to close the Strait of Hormuz.
Another headwind for the Oil price is comments from Federal Reserve (Fed) Chair Jerome Powell in his semi-annual testimony before the United States (US) House Financial Services Committee on Tuesday, which signaled that he might not join other officials for supporting an interest rate cut in the July policy meeting.
“We [Fed] are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance," Powell said. He guided that the central bank will closely monitor the impact of tariffs imposed by US President Donald Trump on inflation through the June and July data. Powell expressed confidence that interest rate cuts would come sooner if the central bank finds that the tariff-drive inflation is not strong enough.
Theoretically, Fed’s stance of higher-for-longer interest rates bode poorly for the Oil price.
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 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.