Oman-Iran plan blocks US, Israeli ships as Hormuz risks rise
Some details of the Oman and Iran plan to manage the Strait of Hormuz revealed that ships belonging to the US, Israel and other “hostile” countries will be prohibited.
The plan revealed that military or civilian vessels linked to Israel would not be allowed to transit through Hormuz. Also, countries and individuals that have caused damage to Iran will not receive permission to pass through the Strait until compensation is paid.
Additionally, heavy fines would be imposed for violations, up to 20%, and the government, working alongside the armed forces, would have to take on duties including guiding navigation, overseeing vessel traffic, and safeguarding the security and environment of the Persian Gulf.
Market’s reaction
West Texas Intermediate, the US crude benchmark, jumped from around $75.65 to $77.00, up nearly 3.30% so far today, on a report from Fars that US and Israeli vessels would be banned under the Oman-Iran Hormuz framework.
WTI Oil FAQs
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.
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.
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.
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.