$85.50 exceeded as WTI recovers despite easing Middle East tensions

Signs of reduced US-Iran tensions could weigh on crude oil prices.
Nearly 20% below its October peak, WTI declined as expectations of a US-Iran diplomatic agreement strengthened.
Iran’s insistence on ending US sanctions and blockades before peace talks keeps uncertainty elevated.

West Texas Intermediate (WTI) is trading near $85.60 per barrel. The oil benchmark is recovering during Wednesday’s Asian session after two days of declines. Still, indications that US-Iran tensions are easing could put crude prices under pressure.

Prospects for a diplomatic agreement improved after US President Donald Trump indicated that further military strikes against Iran might not be needed. Congressional Democrats, meanwhile, are weighing whether to use the approaching government funding deadline to press the Trump administration to end the conflict.

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Iran’s demand for relief from US sanctions and the naval blockade as a condition for peace talks nevertheless leaves uncertainty unresolved. Meanwhile, oil shipments from the Middle East are close to prewar levels again, even as attacks on vessels in the Strait of Hormuz continue.

Almost 20% below its late-October peak, the US oil benchmark has surrendered much of its recent advance. Growing hopes of de-escalation and a continued recovery in regional oil exports have accompanied the decline.

According to analysts at Rabobank, Brent crude oil "sank $4.60 to its lowest price since September, at $93.70/bbl on renewed hopes of world peace," following President Trump’s weekend statement that it is "highly unlikely" the US will order "extensive strikes on Iran, assuming Iran signs a 'very strong agreement'." The analysts warn that what qualifies as a "very strong agreement" could be "flexible, depending on how the Trump Administration plans to define 'winning' in the Middle East, after facing defeat in the US Midterm elections."

WTI Oil: Key Questions

WTI Oil: Definition and Characteristics

Among the crude oils traded internationally, WTI stands for West Texas Intermediate. Alongside Brent and Dubai Crude, it is one of three major types. Its relatively low gravity and sulphur content earn it the descriptions “light” and “sweet”, respectively. Regarded as a high-quality oil, WTI is easy to refine. Production takes place in the United States, with distribution through the Cushing hub, known as “The Pipeline Crossroads of the World”. WTI serves as an oil market benchmark, and its price is regularly cited by the media.

WTI Oil: Main Price Drivers

Supply and demand underpin WTI oil prices, as they do for other assets. Stronger global growth can lift demand, while weaker growth can have the reverse effect. Supply disruptions arising from political instability, wars or sanctions can also affect prices. Another major influence is the policy of OPEC, a group of leading oil-producing countries. With most oil trading conducted in US Dollars, the currency’s value also affects WTI crude oil prices. A weaker US Dollar can make oil more affordable; a stronger currency can have the opposite effect.

WTI Oil: The Impact of Inventory Data

WTI oil prices respond to weekly inventory reports from the American Petroleum Institute (API) and the Energy Information Agency (EIA). Inventory movements signal shifts in supply and demand. Falling stocks can point to stronger demand and lift oil prices, whereas rising stocks can indicate greater supply and weigh on prices. The API releases its report each Tuesday, followed by the EIA the next day. The two sets of results are generally similar: 75% of the time, they are within 1% of each other. As the EIA is a government agency, its figures are regarded as more reliable.

WTI Oil: OPEC’s Influence on Prices

At meetings held twice a year, the 12 oil-producing nations in OPEC (Organization of the Petroleum Exporting Countries) jointly set production quotas for member countries. These decisions frequently influence WTI oil prices. Lower quotas can restrict supply and lift oil prices, while increased production has the reverse effect. The broader OPEC+ group includes ten additional non-OPEC members, with Russia the most notable.