- WTI struggles to gain any meaningful traction amid mixed fundamental cues.
- A further escalation of conflicts in the Middle East underpins the commodity.
- Concerns about the slowing global economy act as a tailwind for Oil prices.
West Texas Intermediate (WTI) US crude Oil prices oscillate in a narrow trading band, just above mid-$70.00s during the Asian on Tuesday and remain well within the striking distance of a nearly three-week top touched the previous day.
Israel's airstrikes against Iranian-backed Hezbollah sites in Lebanon killed nearly 500 people on Monday and raises the risk of a broader conflict in the Middle East. This may impact supply in the key Oil producing region, which, along with worries that a tropical storm may impact output in the US, turn out to be key factors acting as a tailwind for the black liquid.
Meanwhile, the US Dollar (USD) struggles to capitalize on its recent bounce from the YTD low touched in the aftermath of the Federal Reserve's (Fed) jumbo interest rate cut last week and bets for more aggressive policy easing going forward. This is seen underpinning demand for USD-denominated commodities and lending some support to Crude Oil prices.
The upside, however, remains capped amid a bleak global economic outlook. The fears resurfaced after the flash PMIs released on Monday showed that business activity in the Eurozone unexpectedly contracted sharply in September. This comes on top of concerns about fuel consumption in China – the world's largest Oil importer – and acts as a headwind for the commodity.
The aforementioned mixed fundamental backdrop warrants some caution before placing aggressive directional bets around Crude Oil prices as traders opt to wait for more cues about the Fed's rate-cut path. Hence, the focus will remain on speeches by influential FOMC members and the release of the US Personal Consumption Expenditures (PCE) Price Index on Friday.
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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