WTI declines despite rising US-Iran tensions threaten

West Texas Intermediate (WTI) oil prices fell slightly after experiencing gains for three consecutive days, settling around $93.90 during Asian trading hours on Thursday. However, the decline may be short-lived, as tensions between the United States and Iran have heightened concerns about potential disruptions to Middle Eastern oil supplies.

Iran has declared its readiness for a more intense conflict, vowing to resist the US naval blockade and threatening to escalate attacks if American forces continue their strikes on Iranian soil. In contrast, US President Donald Trump suggested that the conflict could persist beyond the November midterm elections, stating that significant relief in gasoline prices is unlikely before then, which signals limited prospects for near-term de-escalation.

The conflict intensified rapidly over the past week, following a month of relative calm, with both nations ramping up their attacks. This geopolitical crisis was further exacerbated when Iran-backed Houthi militants targeted several energy facilities in Saudi Arabia, causing a temporary suspension of operations in the region. According to experts at TD Securities, crude prices continue to rise due to the persistent escalation of geopolitical tensions, with no apparent end in sight for the conflict.

They argue that another round of escalation and a preference for limited attacks and economic squeeze over deal-making are keeping supply risks elevated and the balance of risks for oil skewed in the oil's favor. WTI oil is a high-quality crude oil traded on international markets, characterized by its relatively low gravity and sulfur content.

Sourced in the United States and distributed via the Cushing hub, WTI serves as a benchmark for the oil market, with its price frequently quoted in the media. Like other assets, WTI oil prices are driven by supply and demand dynamics, with global growth, political instability, wars, sanctions, and the decisions of OPEC being key factors influencing its price.

The value of the US Dollar also plays a role, as oil is predominantly traded in US dollars; a weaker dollar makes oil more affordable, while a stronger dollar has the opposite effect. Weekly oil inventory reports from the American Petroleum Institute (API) and the Energy Information Agency (EIA) also impact WTI oil prices, with changes in inventories reflecting fluctuations in supply and demand.

Higher inventories can indicate increased supply and put downward pressure on prices, while lower inventories suggest increased demand and push prices up. OPEC's production quotas, set at twice-yearly meetings, can also significantly impact WTI oil prices; a reduction in quotas tightens supply and raises prices, while an increase in production has the opposite effect.