WTI holds above $85.50 as Middle East risks tighten global supply

WTI oil prices rose for two days straight, reaching around $85.60 per barrel in the Asian hours of Tuesday. This upward trend followed a recent surge of violence in the Middle East, causing concerns about possible disruptions to the region's energy supply. The conflict broke a month-long peace, as US forces attacked Iranian missile launchers on Larak Island, which led Iran to strike UAE and Jordan.

President Donald Trump threatened military action against Kharg Island, a key oil export hub for Iran. Maritime risks were also heightened when a supertanker exploded after hitting two naval mines in the Strait of Hormuz. Despite these threats, oil shipments through the crucial Strait of Hormuz continued, with major Gulf producers, such as Saudi Arabia, the UAE, Kuwait, and Iraq, shipping partial quantities.

The situation worsened as drone and missile strikes on Russian refineries reduced the global refining capacity. This, along with Middle Eastern supply concerns, pushed refined-product margins to new highs. BNY's Wee Khoon Chong mentioned that Trump's deal with Venezuela to secure majority control of more than 65 billion barrels of oil reserves has introduced uncertainty to energy markets.

While Trump claimed the agreement would be "costless" to US taxpayers and strengthen bilateral ties, Chong pointed out the lack of specifics on legal terms and the potential impact on gasoline prices. WTI Oil is a premium-grade Crude Oil traded on international markets, known for its low gravity and sulfur content. It is sourced in the United States and distributed via the Cushing hub, considered the "Pipeline Crossroads of the World."

The WTI price is a major benchmark for the oil market, influenced by supply and demand factors, political instability, wars, sanctions, and the decisions of OPEC, a group of major oil-producing nations. The US Dollar's value also affects WTI Crude Oil prices, as the majority of oil trades are conducted in US Dollars. Weekly API and EIA inventory reports, published on Tuesdays and the day after, respectively, provide insights into supply and demand changes.

When OPEC cuts production quotas, it tightens supply and raises oil prices; when it increases output, the opposite occurs. OPEC+ refers to a broader group including ten non-OPEC members, such as Russia.