WTI returns to the $60.00 area as risk aversion eases

Crude prices return to the $60.00 level amid a brighter market mood.
Ukrainian attacks on Russian Oil refineries have eased concerns of an oversupply.
US EIA Oil stocks increased beyond expectations last week, adding pressure on crude prices.

Guillermo Alcala FXStreet

Oil prices are trading higher on Thursday's European morning session, trimming losses after a three-day reversal. The price US benchmark West Texas Intermediate (WTI) has returned to levels above $60.00, although it remains well below the $62.40 highs reached in late October

A somewhat brighter market mood is providing some support for crude prices to bounce up from two-week lows. Beyond that, news that the Ukrainian army is stepping up attacks on Russian energy sites is easing market concerns of an Oil glut.

Ukrainian sources have reported strikes on Russia's Volgograd Oil refinery on Thursday, and Russian media mentioned explosions at several energy sites. This news comes after a drone attack on Saratov's Oil refinery earlier this week, a plant that has a production capacity of 4.8 million metric tons per year.

Crude prices have remained on the back foot since late October, weighed by market fears of an oversupply, as the OPEC countries and their allies maintain their plans to increase output over the coming months, while the world's main economies show signs of slowdown, hinting at a decline in demand.

These fears crystallized on Wednesday as a report by the US Energy Information Administration (EIA) revealed that Crude oil stocks increased by 5.20 million barrels in the last week of October, well beyond market expectations of a 1.8 million increase.

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

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.

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