WTI flat lines below $70.00 mark; demand concerns continue to cap the upside

WTI lacks any firm intraday direction on Tuesday amid mixed fundamental cues.
Concerns about slowing demand continue to act as a headwind for Oil prices.
Middle East tensions warrant some caution before positioning for further losses.

Haresh Menghani FXStreet

West Texas Intermediate (WTI) US Crude Oil prices struggle to capitalize on the previous day's modest gains and oscillate in a narrow band, around the $69.70-$69.75 area during the Asian session on Tuesday. The commodity, meanwhile, remains within the striking distance of a nearly three-week low touched last Friday and seems vulnerable to prolonging the recent fall witnessed over the past two weeks or so.

The initial market reaction to an interest rate cut by the People's Bank of China (PBOC) on Monday turned out to be short-lived amid concerns over slowing demand, which continues to act as a headwind for Crude Oil prices. The Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) trimmed their global demand forecast last month amid an economic downturn in China – the world's biggest oil importer. The fears were further fueled by the overnight warning by IEA head Fatih Birol, saying that weakness in China will continue to weigh on global oil demand in the coming years.

Apart from this, the recent US Dollar (USD) upswing to its highest level since early August, triggered by expectations for a less aggressive policy easing by the Federal Reserve (Fed), contributes to capping the upside for Crude Oil prices. That said, the risk of a further escalation in the Middle East conflict, which could impact supply in the key oil-producing region, offers some support to the black liquid. This, in turn, warrants some caution for bearish traders and positioning for an extension of the recent sharp retracement slide from the vicinity of the $78.00 mark, or a nearly two-month high touched on October 8.

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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