WTI faces rejection near 50-day SMA barrier, slides to sub-$58.00 levels

WTI attracts fresh sellers as Trump’s Venezuela oil plan fuels oversupply worries.
The recent USD rally to a nearly one-month peak contributes to capping Oil prices.
Traders now look to the key US NFP report for Fed rate cut cuts and some impetus.

Haresh Menghani FXStreet

West Texas Intermediate (WTI) US Crude Oil prices attract fresh sellers during the Asian session on Friday and erode a part of the previous day's strong move up from the vicinity of the lowest level since December 19, touched earlier this week. The commodity currently trades just below the $58.00 mark, down over 0.80% for the day, and remains capped below the 50-day Simple Moving Average (SMA) pivotal resistance.

The commodity did get a strong boost on Wednesday after the US government data showed that oil inventories shrunk more than expected, by 3.8 million barrels in the week to January 2. This marked the largest decrease since late October, which, along with rising geopolitical risks and supply disruption worries, prompted aggressive short-covering around Crude Oil prices. The move up, however, lacks follow-through amid expectations that the US control of Venezuela’s oil was likely to increase global supplies.

In fact, a WSJ report said that US President Donald Trump is planning an initiative to control the Venezuelan oil industry for several years to come in a bid to achieve the $50 a barrel price target. The report further added that the Trump administration is also considering controlling Venezuela’s state-run oil company, Petróleos de Venezuela SA, or PdVSA. Furthermore, Trump had said earlier this week that Venezuela will be turning over 30 million to 50 million barrels of high-quality, sanctioned oil to the US.

Apart from this, worries about weakening fuel demand and the recent US Dollar (USD) rise to a nearly one-month peak, touched on Thursday, fail to assist the black liquid to build on Wednesday's gains. Traders now look forward to the release of the US Nonfarm Payrolls (NFP) report for more cues about the Federal Reserve's (Fed) future rate-cut path. The outlook will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to USD-denominated commodities, including Crude Oil prices.

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

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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