- WTI attracts some buyers amid geopolitical risks stemming from conflicts in the Middle East.
- September Fed rate cut expectations undermine the USD and further benefit the commodity.
- Worries about slugging demand in China keep a lid on further gains ahead of the Fed meeting.
West Texas Intermediate (WTI) US crude Oil prices kick off the new week on a positive note and reverse a part of Friday's heavy losses back closer to the lowest level since June 10, around the $75.75 region touched the previous day. The commodity, however, struggles to build on the momentum beyond the $77.00/barrel mark, warranting some caution before positioning for any further appreciating move.
A rocket strike in the Israeli-occupied Golan Heights on Saturday, which killed 12 teenagers and children, raised fears about an all-out war between Israeli forces and Hezbollah in Lebanon. Furthermore, concerns that a wider conflict in the Middle East will
disrupt global crude supply in the key producing region turn out to be a key factor driving flows towards the black liquid. Apart from this, a modest US Dollar (USD) weakness, led by bets for an imminent start of the Federal Reserve's (Fed) policy easing cycle, lends additional support to Crude Oil prices.
Investors now seem convinced that the US central bank will start lowering borrowing costs in September and cut interest rates two more times by the end of this year. The bets were lifted by the release of the US Personal Consumption Expenditures (PCE) Price Index on Friday, which showed that inflation rose modestly in June and added to signs of easing price pressures. Additional details of the report revealed that consumer spending slowed a bit last month, suggesting that growth in the world's largest economy is waning amid a cooling labor market.
This comes on top of sluggish growth in China – the world's top Oil importer – and concerns about falling fuel demand, which, in turn, might cap the upside for the commodity. Traders might also prefer to wait for the outcome of a two-day FOMC monetary policy meeting on Wednesday, which will play a key role in influencing the USD price dynamics and provide some meaningful impetus to Crude Oil prices. This makes it prudent to wait for strong follow-through buying before confirming that the black liquid has indeed formed a near-term bottom.
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 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.
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