WTI Sell-Off May Be Hiding Supply Warning Amid US-Iran Uncertainty

The price of West Texas Intermediate (WTI) oil has fallen sharply as hopes of a US-Iran agreement resurface, but signs point to a potential supply warning. The WTI curve remains in steep backwardation, with buyers still willing to pay more for prompt delivery than for oil one year ahead.

This suggests that the market is expecting an eventual normalization, despite the current front-end uncertainty driven by US-Iran headlines. Commercial crude inventories rose 2 million barrels to 411.7 million in the week ending July 17, but remained 6% below the 5-year seasonal average.

Cushing stocks fell by 674K barrels to 19.4 million and were more than 10 million barrels below their 5-year comparison. Refinery utilization held at a strong 96.1%, while total petroleum demand rebounded by just over 1 mbpd on the week.

The US shale response remains gradual, with crude production slipping by 63K kbpd to 13.798 million in the week ending July 17. Non-commercial WTI net longs rose by nearly 38.5K contracts to around 120.1K contracts, but still stood at only the 11.4th percentile of the last three years.

The market implications are that a credible peace agreement may trigger fresh selling, while another breakdown in negotiations could force renewed short covering and new long demand, amplifying the upside response.