WTI holds steady below $63.00 ahead of second-round of US-Iran nuclear talks

WTI lacks a firm direction as traders keenly await the second round of the US-Iran talks.
Geopolitical risks remain in play, supporting Crude Oil prices and limiting the downside.
Fed rate cut bets keep the USD bulls on the defensive, also supporting the commodity.

Haresh Menghani FXStreet

West Texas Intermediate (WTI) US Crude Oil prices struggle to capitalize on a modest Asian uptick on Monday and currently trade just below the $63.00 mark, up less than 0.40% for the day. The commodity, meanwhile, remains close to a nearly two-week low touched on Friday as traders keenly await the second round of indirect US-Iran talks this week.

The two countries renewed negotiations earlier this month to tackle their decades-long dispute over Iran's nuclear program. US President Donald Trump said last week that a deal with Iran is possible over the next month. Moreover, Iran has shown readiness for compromises to revive a nuclear deal with the US that delivers economic benefits for both sides. This diminishes the odds of a military confrontation and the risk of supply disruption, which, in turn, acts as a headwind for Crude Oil prices.

The US, however, has dispatched a second aircraft carrier to the region and is preparing for the possibility of a sustained military campaign if the talks do not succeed. In response, Iran’s Revolutionary Guards have warned that they could retaliate against any US military base in case of strikes on their territory. This keeps geopolitical risk premium in play and offer some support to Crude Oil prices, warranting some caution for aggressive bearish traders or positioning for any meaningful decline.

Meanwhile, softer US consumer inflation figures released on Friday lifted market bets that the US Federal Reserve (Fed) will lower borrowing costs in June. This, in turn, fails to assist the US Dollar (USD) in attracting any meaningful buyers, which, in turn, is seen as acting as a tailwind for the USD-denominated commodity. Hence, strong follow-through selling is needed to confirm a near-term top for Crude Oil prices around the $66.25 area, or a nearly five-month high touched in January.

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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