WTI remains depressed amid demand concerns, downside potential seems limited

WTI drifts lower for the third straight day amid worries about slowing Chinese economy.
A modest US Dollar strength contributes to the driving flows away from the commodity.
Worries about supply disruption from the Middle East might continue to act as a tailwind.

Haresh Menghani FXStreet

West Texas Intermediate (WTI) US crude Oil prices trade with a negative bias for the third successive day on Tuesday, albeit lack follow-through selling and hold above the overnight swing low. The commodity currently trades around the $80.70 region, down nearly 0.40% for the day and is pressured by a combination of factors.

The official data released on Monday showed that China's economy expanded by 4.7% over the year during the second quarter of 2024, down from the 5.3% rise recorded in the first quarter. This adds to worries about a slowdown in the world's second-largest economy and waning fuel demand in the world's biggest oil importer, which, in turn, is seen as a key factor exerting some downward pressure on Crude Oil prices.

Meanwhile, the US Dollar (USD) gains some positive traction and recovers further from over a three-month trough touched on Monday, which further contributes to driving flow away from the USD-denominated commodity. That said, growing acceptance that the Federal Reserve (Fed) will begin the rate-cutting cycle as soon as September might hold back the USD bulls from placing aggressive bets and positioning for further gains.

Apart from this, concerns about supply disruptions stemming from the ongoing conflicts in the Middle East should act as a tailwind for Crude Oil prices and help limit deeper losses. Hence, it will be prudent to wait for strong follow-through selling before positioning for an extension of the recent pullback from the vicinity of the $84.0 mark, or over the two-month peak touched on July 5. Traders now look to the US Retail Sales for a fresh impetus.

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 13 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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