WTI advances to one-week high, closer to mid-$59.00s as traders eye US-China trade talks
- WTI builds on this week’s bounce from a nearly one-month low amid US-China trade talks optimism.
- The fundamental backdrop warrants some caution before positioning for any further appreciation.
- Traders might also opt to wait on the sidelines ahead of the crucial FOMC policy decision later today.
West Texas Intermediate (WTI) US Crude Oil prices gain some follow-through positive traction on Wednesday and climb to a one-week high during the Asian session. The commodity currently trades around the $59.40 region, up over 1% for the day, and looks to build on this week's bounce from the vicinity of the $55.00 psychological mark, or a nearly one-month low.
News that the US and China – the world's two largest economies – will start trade talks this weekend helps improve sentiment and ease demand concerns. This, in turn, provides some relief in the oil market, which, along with expectations for tighter US supplies, acts as a tailwind for the black liquid. In fact, some US energy firms announced rig reductions on the back of lower Crude Oil prices.
The commodity draws additional support from persistent geopolitical risks stemming from the protracted Russia-Ukraine war and fresh conflicts in the Middle East. Apart from this, hopes for improving fuel demand in China underpin Crude Oil prices, though the OPEC+ decision to speed up output increases continues to stoke fears of oversupply and might cap gains for the commodity.
Meanwhile, some repositioning trade ahead of the highly-anticipated FOMC policy decision assists the US Dollar (USD) to gain some positive traction following a three-day losing streak. This might further contribute to keeping a lid on Crude Oil prices. Traders now look forward to the government data on US stockpiles. The focus, however, will remain on the outcome of a two-day FOMC meeting.
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 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
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
