WTI flat lines below $73.00 on US recession fears, easing supply concerns, bearish USD
|- WTI is seen consolidating in a narrow range on Friday amid mixed fundamental cues.
- Concerns about slowing demand and easing geopolitical tensions act as a headwind.
- Dovish Fed expectations continue to undermine the USD and could lend some support.
West Texas Intermediate (WTI) US crude Oil prices struggle to capitalize on the previous day's bounce from the vicinity of a two-week low – levels just below mid-$71.00s – and oscillates in a narrow band during the Asian session on Friday. The commodity currently trades around the $72.75 region, nearly unchanged for the day, and remains on track to register steep weekly losses amid concerns over slowing demand.
A downward revision of the number of jobs added by US employers this year through March resurfaced fears about a potential recession in the world's top oil-consuming nation. This comes on top of persistent worries about an economic slowdown in China – the world's top oil importer – and turns out to be a key factor acting as a headwind for the black liquid. Apart from this, hopes for a ceasefire in Gaza contribute to capping the upside for Crude Oil prices.
In fact, US officials stated that an agreement between Israel and Hamas was close. This, in turn, eases concerns about a wider conflict in the Middle East and supply disruptions from the key Oil producing region. That said, government data released on Wednesday showed an outsize drawdown in US Crude inventories. This, along with expectations that an interest rate cut by the Federal Reserve will boost economic activity, could limit the downside for Crude Oil prices.
Market players seem convinced that the US central bank will begin its policy-easing cycle and announce a 25 basis points rate cut at the September meeting. This, in turn, fails to assist the US Dollar (USD) to capitalize on the overnight goodish recovery from the YTD low and should further offer some support to USD-denominated commodities, including Crude Oil prices. This, in turn, warrants some caution before positioning for an extension of a nearly two-week-old downtrend.
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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