WTI Oil declines as Iraq production resumes, Fed rate cut hopes cap downside
- The price of WTI fell to $58.50 on Tuesday, weighed down by the restoration of production in Iraq.
- However, geopolitical uncertainty and expectations of interest rate cuts by the Federal Reserve could limit losses.
- Investors are awaiting API inventory data amid increased volatility in the energy market.
West Texas Intermediate (WTI) US Oil trades around $58.50 on Tuesday at the time of writing, down 0.40% on the day. The Crude Oil market is declining after the announcement of restored production at Iraq’s West Qurna 2 field, a development that increases short-term supply and pressures Oil prices.
According to Reuters, Iraq has resumed output at the Lukoil-operated site after a pipeline leak temporarily reduced exports. The field, which produces over 460,000 barrels per day, nearly 0.5% of global Oil supply, also accounts for around 9% of Iraq’s total output, making its stabilization a significant factor for the global supply balance. This logistical improvement in Iraq is therefore exerting immediate downward pressure on prices.
At the same time, geopolitical developments are limiting the extent of WTI’s pullback. US President Donald Trump recently expressed disappointment over Ukrainian President Volodymyr Zelenskiy’s response to a US proposal to end the conflict, reviving concerns about energy flows linked to Russia. Analysts believe restrictions on Russian energy exports are likely to stay in place, given the absence of an agreement to resolve the war, maintaining a risk premium on Crude Oil prices.
Meanwhile, Asian import dynamics continue to reshape global flows. According to Commerzbank, China increased its purchases from Saudi Arabia and Iran in November, while imports from Russia declined amid softer demand and renewed US sanctions. These shifts underscore the persistent pressure on Russian supplies and may help establish a near-term floor under Crude Oil prices.
Market participants now turn their attention to Wednesday’s monetary policy decision from the Federal Reserve (Fed). Investors strongly expect a 25-basis-point rate cut at the December meeting, a move that could improve the outlook for energy demand in 2025. Lower rates typically weaken the US Dollar (USD), which in turn tends to support WTI by making USD-denominated commodities more attractive to foreign buyers.
Traders also await the weekly American Petroleum Institute (API) report due later today, which will provide an early indication of US stock levels. A larger-than-expected inventory build could add further pressure to WTI, already weighed down by the swift restoration of Iraqi output.
WTI Oil FAQs
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.
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.
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.
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
Ghiles Guezout
FXStreet
Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.
