WTI advances above $57.50 due to potential supply concerns

WTI price rises on potential supply disruptions amid escalating geopolitical tensions.
Russia and Ukraine traded accusations over civilian attacks on New Year’s Day.
The US Treasury sanctioned four Oil tankers for helping Venezuela’s Maduro government evade restrictions.

Akhtar Faruqui FXStreet

West Texas Intermediate (WTI) Oil price climbs to near $57.70 during the European hours on Friday. Crude Oil prices edge higher on potential supply concerns stemming from escalating geopolitical tensions.

Kyiv has stepped up strikes on Russian energy infrastructure in recent months to disrupt Moscow’s military financing. Meanwhile, Russia and Ukraine exchanged accusations over civilian attacks on New Year’s Day, despite intensive United States (US)-led talks under President Donald Trump to end the nearly four-year conflict.

The US Treasury Department on Wednesday sanctioned the Panama-flagged Nord Star, Guinea-flagged Lunar Tide, and Hong Kong-flagged Della for allegedly transporting Venezuelan crude or fuel this year to Asia and the Caribbean, aiding President Maduro’s government in evading sanctions, including four tankers linked to a so-called ‘shadow fleet,’ according to Reuters.

The measures have prevented sanctioned vessels from entering or leaving Venezuela, forcing the state Oil company PDVSA to adopt extreme steps to avoid refinery shutdowns as residual fuel inventories build up.

US Crude Oil stockpiles fell by 1.934 million barrels last week, the largest draw since mid-November and well above expectations for a 0.9 million-barrel decline, reported by the US Energy Information Administration (EIA) on Wednesday.

Traders are looking forward for virtual meeting of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) due on Sunday, with expectations that the group will uphold its November decision to pause further production increases.

WTI Oil FAQs

What is WTI Oil?

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.

What factors drive the price of WTI Oil?

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.

How does inventory data impact the price of WTI Oil

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.

How does OPEC influence the price of WTI Oil?

OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 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.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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