WTI drifts lower below $78.00 on halt in Houthis' Red Sea attacks

WTI price loses traction to near $77.85 in Friday’s early Asian session.
Maritime security officials expect a halt to Houthi shipping attacks.
The expectation of rising oil demand during the Lunar New Year might support the WTI price.

Lallalit Srijandorn FXStreet

West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $77.85 on Friday. The WTI price edges lower on an expected halt to Houthi shipping attacks in the Red Sea after a ceasefire deal in the war in Gaza between Israel and the militant group Hamas.

Maritime security officials said on Thursday that they were expecting the Houthi militia to announce a halt in its attacks on ships in the Red Sea. "The Houthi development and the ceasefire in Gaza help the region stay calmer, taking some of the security premium out of oil prices," said John Kilduff, partner at Again Capital in New York.

The US Commerce Department reported on Thursday that US Retail Sales increased in December, pointing to strong demand in the economy. Additionally, the Federal Reserve's (Fed) cautious approach to cutting interest rates this year might support the Greenback in the near term and weigh on the USD-denominated commodity price. The Federal Open Market Committee (FOMC) members will meet again on January 28-29, with pricing in almost no chance of a move.

On the other hand, analysts estimate oil consumption to rise by 1.4 million bpd year on year in the next weeks, driven by increased travel activity in India, where a large festival is taking place, as well as travel for Lunar New Year festivities in China at the end of January.

Oil traders will closely monitor the release of China’s Gross Domestic Product (GDP) for the fourth quarter (Q4) of 2024, along with the Retail Sales and Industrial Production. Any signs of the recovery in the Chinese economy could underpin the WTI price as China is the world's second-largest consumer of oil.

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

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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