WTI prices tread water around $63.00 on easing supply concerns
- Oil prices edge up above $63.00 on Monday but remain well below January's $66.25 highs.
- Progress in the negotiations between the US and Iran is easing supply concerns.
- Increasing expectations of Fed easing are keeping prices from dropping further.
The US benchmark West Texas Intermediate (WTI) Oil trades moderately higher on Monday, changing hands at $63.30 per barrel at the time of writing, but trapped within previous ranges and significantly below the $66.25 highs witnessed in late January.
The ongoing negotiations between the US and Iran about the Islamic Republic’s nuclear program have eased tensions about a war that would, highly likely, spill over the entire region, causing severe strains on global supply. Last week's de-escalation has been the main driver of the recent pullback in WTI prices.
Crude Oil appreciated more than 14% in January, from the eight-month lows at the $54.90 area hit in late December. Rising tensions between Washington and Tehran, which included the deployment of a massive US "armada" to the Middle East, raised alarms about a war that would cause a significant squeeze in global oil supply.
Apart from that, growing bets that the Federal Reserve will be forced to lower borrowing costs further in the como¡ing months are providing some support to prices on Monday. Investors anticipate that a less restrictive monetary policy in the US, the world’s largest crude consumer, will stimulate demand, which is easing fears of an Oil glut.
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
Guillermo Alcala
FXStreet
Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.
