WTI falls toward $80.00 due to demand concerns in China
|- WTI price depreciates due to the potential for reduced demand in China.
- China's crude Oil imports fell to 46.45 million tons MoM in June.
- Fed Chair Jerome Powell stated that inflation is on track to meet the Fed's target.
West Texas Intermediate (WTI) Oil price extends its losses for the third consecutive session, trading around $80.10 per barrel during the European hours on Tuesday. This decline is attributed to a slowing Chinese economy, which is reducing demand in the world's largest Oil-importing country.
China's Gross Domestic Product (GDP) grew 4.7% year-over-year in the second quarter, compared to a 5.3% expansion in the first quarter and an expected 5.1%. The National Bureau of Statistics (NBS) reported that China's economy operated generally steadily in the first half of the year, with H1 GDP growth at +5.0% year-on-year. Looking ahead, the NBS highlighted increasing external uncertainties and numerous domestic challenges that China's economy faces in the second half of the year.
Crude Oil imports fell both month-over-month and year-over-year to 46.45 million tons in June. This decline aligns with indications that the rapid adoption of electric vehicles in China may mean that demand has already peaked. Year-to-date shipments are 2.3% lower than the same period last year, per Bloomberg.
In the United States, Federal Reserve Chair Jerome Powell mentioned on Monday that this year's three inflation readings "add somewhat to confidence" that inflation is on track to meet the Fed’s target sustainably, suggesting that interest rate cuts may not be far off, per Reuters.
Additionally, Fed Bank of San Francisco President Mary Daly noted that inflation is cooling in a way that increases confidence it’s heading toward the 2% target. However, Daly emphasized the need for more data before making a rate decision. Lower interest rates reduce borrowing costs, potentially boosting economic activity in the United States, the world’s largest economy, which may increase 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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