WTI recovers further from YTD low and climbs to $71.25 area; lacks bullish conviction
- WTI scales higher for the second straight day amid worries that Iran's oil supply could be disrupted.
- Concerns that Trump’s trade tariffs will hamper global growth and temper fuel demand cap gains.
- A modest USD strength further contributes to keeping a lid on the upside for Crude Oil prices.
West Texas Intermediate (WTI) US Crude Oil prices gain some positive traction for the second successive day on Monday and move away from the lowest level since December 30, around the $70.30-$70.25 area touched last week. The commodity currently trades around the $71.25 region, up over 0.60% for the day, though it lacks bullish conviction amid mixed fundamental cues.
US President Donald Trump's administration issued a fresh round of sanctions targeting several individuals and vessels involved in the sale and transportation of Iranian crude to China. Adding to this, Trump said that he would return to a maximum-pressure approach to Iran and seek to reduce Iranian oil exports to zero. This, in turn, fuels concern that Iran's oil supply could be disrupted and acts as a tailwind for the black liquid.
That said, worries that Trump's trade tariffs could dampen global economic growth and dent energy demand keep a lid on any gains for Crude Oil prices. In fact, Trump threatened on Sunday he would announce additional 25% tariffs on all steel and aluminum imports into the US, and will also announce reciprocal duties over what he sees as unfair trading practices. This comes on top of the escalating US-China trade war and warrants caution for bulls.
Apart from this, a modest US Dollar (USD) strength, bolstered by expectations that Trump's protectionist policies would boost inflation and limit the scope for the Federal Reserve (Fed) to ease further, might contribute to capping Crude Oil prices. Hence, it will be prudent to wait for strong follow-through buying before confirming that the recent downfall witnessed over the past three weeks or so has run its course and placing bullish bets around the commodity.
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
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
