- WTI gains some positive traction amid rising geopolitical tensions in the Middle East.
- A fall in US crude inventories and some follow-through USD lends additional support.
- China’s economic woes to cap gains ahead of the key FOMC monetary policy decision.
West Texas Intermediate (WTI) US crude Oil prices tick higher during the Asian session on Wednesday and moves away from the lowest level since June 6, around the $74.25 area touched the previous day. The commodity, for now, seems to have snapped a three-day losing streak and currently trades around the $75.25 mark, though any meaningful appreciating move seems elusive.
Israel’s retaliation against Iran-backed Lebanese group Hezbollah, in response to the Golan Heights attack on Saturday, raised the risk of a wider conflict in the Middle East. This, in turn, fuels worry about supply disruptions from the key Oil producing region, which, along with data showing strong draws in US Crude inventories for the fifth straight week, lend some support to the black liquid.
The American Petroleum Institute (API) reported on Tuesday that US crude oil inventories fell by 4.495 million barrels for the week ending July 26, indicating tight conditions in the world’s largest fuel consumer. Meanwhile, the US Dollar (USD) extends the overnight pullback from a three-week peak amid dovish Federal Reserve (Fed) expectations and further benefits Crude Oil prices.
Traders, however, seem reluctant and prefer to wait for more cues about the Fed’s policy path before positioning for any further USD depreciating move. Meanwhile, concerns about slowing demand in the world’s top oil importer resurfaced following the release of rather unimpressive official Chinese PMI prints for July. This, in turn, might keep a lid on any further gains for Crude Oil prices.
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 13 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.
