WTI drops to nearly two-week low amid optimism over Gaza ceasefire talks

WTI remains under some selling pressure amid hopes for a ceasefire in Gaza.
China’s economic woes contribute to the decline to a nearly two-week low.
Fed rate cut bets undermine the USD, which could help limit further losses.

Haresh Menghani FXStreet

West Texas Intermediate (WTI) US crude Oil prices drift lower for the third straight day on Tuesday – also marking the fifth day of a decline in the previous six – and drop to a nearly two-week low during the Asian session. The commodity currently trades just below mid-$73.00s, down 0.40% for the day, amid hopes of a ceasefire in Gaza.

US Secretary of State Antony Blinken said on Monday that Israeli Prime Minister Benjamin Netanyahu had accepted a bridging proposal to tackle disagreements blocking a ceasefire deal and also urged Hamas to do the same. This helped ease worries about a broader conflict in the Middle East and supply disruptions from the key Oil producing region, which, in turn, is seen weighing on the black liquid.

Furthermore, an economic slowdown in China – the world's largest importer of Oil – is expected to curb fuel demand and exert additional pressure on the commodity. In fact, Chinese refineries sharply cut crude processing rates last month in response to weak fuel demand. That said, the risk of a further escalation of geopolitical tensions could lend some support to Crude Oil prices and help limit losses.

Apart from this, the prevalent selling bias surrounding the US Dollar (USD), which dropped to a fresh multi-month low amid bets for an imminent start of the Federal Reserve's (Fed) rate-cutting cycle, should lend some support to the commodity. Traders might also refrain from placing aggressive directional bets ahead of the FOMC minutes on Wednesday and Fed Chair Jerome Powell's speech on Friday.

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 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.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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