WTI extends recovery above $76.50 as Libya production halt raises supply concerns
|- WTI trades in positive territory for the third consecutive day near $76.75 in Tuesday’s early Asian session.
- Libya's shutdown of production and exports fuelled fresh supply concerns, boosting the WTI price.
- The sluggish Chinese economy and oil demand concerns might cap the black gold’s upside.
West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $76.75 on Tuesday. The WTI price extends its recovery on the back of a production halt in Libya, adding to supply fears fuelled by reports of escalating conflict in the Middle East.
Libya’s eastern government in Benghazi said Monday that crude oil production and exports would shut down amid a dispute with the internationally recognized western government in Tripoli over who should lead the central bank, per Bloomberg.
Libya produces around 1.2 million barrels per day, with more than 1 million bpd exported to the global market, said Matt Smith, lead oil analyst for the Americas at Kpler. The developments surrounding Libya's output cuts have triggered further supply concerns and boosted WTI prices.
"The biggest risk for the oil market is probably a further drop in Libyan oil production due to political tensions in the country, with a risk that production could fall from current levels of 1 million barrels per day to zero," noted Giovanni Staunovo, UBS analyst.
Furthermore, firmer expectations that the US Federal Reserve (Fed) will cut interest rates in its upcoming September meeting lift the WTI price. On Monday, San Francisco Fed President Mary Daly said that she believes it’s appropriate for the Fed to begin cutting interest rates. Lower interest rates generally support the WTI price as it reduces the cost of borrowing, which can boost economic activity, and oil demand.
However, the upside for black gold might be limited. China’s oil imports in July were down 12% from June and 3% from July 2023, raising fears of the country's economic health and future oil demand as China is the world’s largest importer of oil.
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.
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