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

• WTI price receives support from rising geopolitical tensions in the Middle East, raising concerns about potential supply disruptions.
• US President Joe Biden stated that Israel could strike Iran's Oil infrastructure.
• OPEC+ could potentially offset a complete loss of Oil supply if Iran's facilities are targeted.

West Texas Intermediate (WTI) Oil price continues to rise for the fourth consecutive day, holding firm with strong weekly gains, trading around $73.50 per barrel during Friday's Asian session. Crude Oil prices are supported by escalating geopolitical tensions in the Middle East, raising concerns about potential disruptions in crude supply from the region, which accounts for roughly one-third of the global Oil supply.

US President Joe Biden stated that the United States (US) is in discussions with Israel about potential strikes on Iran's Oil infrastructure. Israeli Prime Minister Benjamin Netanyahu warned that Iran "will pay a heavy price" for Tuesday’s attack, which involved the firing of at least 180 ballistic missiles at Israel, according to the BBC.

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

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

Libya's eastern-based government and the Tripoli-based National Oil Corporation announced on Thursday the reopening of all oilfields and export terminals, following the resolution of a leadership dispute at the central bank. This decision ends a crisis that had significantly reduced the country's Oil production, according to Reuters.

WTI Oil FAQs

What is WTI Oil?

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.

What factors drive the price of WTI Oil?

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.

How does inventory data impact the price of WTI Oil

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.

How does OPEC influence the price of WTI Oil?

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.

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