WTI rises to near .50 as Middle East tensions weigh on possible supply disruption

WTI rises to near $73.50 as Middle East tensions weigh on possible supply disruption

  • WTI price is receiving support from rising geopolitical tensions in the Middle East, raising concerns about possible supply disruptions.
  • US President Joe Biden stated that Israel could attack Iran’s oil infrastructure.
  • OPEC+ could potentially offset a complete loss of oil supply if Iranian facilities are targeted.

West Texas Intermediate (WTI) oil prices continue to rise for the fourth day in a row, holding steady with strong weekly gains. The price was around $73.50 a barrel during Friday’s Asian session. Crude oil prices are being supported by escalating geopolitical tensions in the Middle East, raising concerns about possible disruptions to crude supplies from the region, which accounts for about a third of global oil supply.

US President Joe Biden stated that the United States (US) is in talks with Israel about possible attacks on Iran’s oil infrastructure. According to the BBC, Israeli Prime Minister Benjamin Netanyahu warned that Iran would “pay a heavy price” for Tuesday’s attack, in which at least 180 ballistic missiles were fired at Israel.

However, OPEC+, which consists of the Organization of the Petroleum Exporting Countries (OPEC) and allies such as Russia and Kazakhstan, has enough spare oil capacity to offset a complete loss of Iranian supply if Israel were to target Iran’s facilities. But the group would face significant challenges if Iran retaliated by attacking its Gulf neighbors’ oil facilities.

OPEC+ has cut production in recent years to support oil prices amid weak global demand, leaving the group with millions of barrels of spare capacity. Currently, OPEC+ production cuts stand at 5.86 million barrels per day (bpd). Analysts estimate that Saudi Arabia can increase production by 3.0 million bpd, while the United Arab Emirates (UAE) can increase production by 1.4 million bpd.

Libya’s eastern government and the Tripoli-based National Oil Corporation announced Thursday the reopening of all oil fields and export terminals after resolving a leadership dispute at the central bank. According to Reuters, this decision ends a crisis that had significantly reduced the country’s oil production.

Frequently asked questions about WTI oil

WTI oil is a type of crude oil sold in international markets. WTI stands for West Texas Intermediate, one of three main grades including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” due to its relatively low gravity and sulfur content, respectively. It is considered a high quality oil that is easy to refine. It is sourced in the United States and distributed through the Cushing hub, considered the “pipeline hub of the world.” It is a benchmark for the oil market and the WTI price is often quoted in the media.

As with all assets, supply and demand are the main drivers of WTI oil prices. Global growth can therefore be a driver of increased demand and, conversely, weak global growth. Political instability, wars and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of large oil producing countries, are another important price driver. The value of the US dollar influences the price of WTI crude oil because oil is predominantly traded in US dollars, so a weaker US dollar can make oil more affordable and vice versa.

The weekly oil inventory reports from the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI oil. Inventory changes reflect fluctuating supply and demand fluctuations. If the data shows a decline in inventories, it may indicate increased demand that is driving up the price of oil. Higher inventories may be due to increased supply, depressing prices. The API report is published every Tuesday and the EIA report is published the following day. Their results are usually similar and are within 1% of each other 75% of the time. The 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 that take place twice a year. Their decisions often impact WTI oil prices. If OPEC decides to cut quotas, it could tighten supply and drive up oil prices. If OPEC increases production, it will have the opposite effect. OPEC+ refers to an expanded group that includes ten other non-OPEC members, the most notable of which is Russia.