WTI extends the rally above $70.00 amid Hurricane Francine's impact
|- WTI holds positive ground near $70.35 in Tuesday’s Asian session.
- The impact of Hurricane Francine on oil output and firmer Fed rate cut bets support the WTI price.
- China demand worries might cap the WTI’s upside in the near term.
West Texas Intermediate (WTI), the US crude Oil benchmark, is trading around $70.35 on Tuesday. WTI price gains momentum as Hurricane Francine disrupts production in the US Gulf of Mexico.
The US Bureau of Safety and Environmental Enforcement (BSEE) reported on Monday that Hurricane Francine disrupted about 12% of the crude oil production and 16% of natural gas output in the Gulf of Mexico. This, in turn, boosts the WTI price to two-week highs.
Furthermore, the Federal Open Market Committee (FOMC) will announce its interest rate decision on Wednesday. According to CME FedWatch, Fed fund futures show investors are increasingly betting the US Fed will cut by 50 basis points (bps) instead of 25 bps. Lower interest rates will reduce the cost of borrowing, which generally lifts the demand for oil.
On the other hand, persistent Chinese demand concerns might exert some selling pressure on black gold as China is the world’s biggest oil importer. Data released on the weekend showed that Chinese Industrial Production growth slowed to a five-month low in August, while Retail Sales and new home prices deteriorated further.
IG market strategist Yeap Jun Rong noted that the recent weaker-than-expected Chinese economic data dampened market sentiment, with the low-for-longer growth outlook in the world's second-largest economy reinforcing doubts over oil demand.
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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