- WTI attracts some buyers on Tuesday amid rising geopolitical tensions in the Middle East.
- China’s economic woes, along with US recession fears, keep a lid on any meaningful upside.
- The USD draws support from rebounding US bond yields and contributes to capping gains.
West Texas Intermediate (WTI) US crude Oil prices edge higher during the Asian session on Tuesday and recover further from a multi-month low, around the $71.20-$71.15 region touched the previous day. The commodity, however, struggles to capitalize on the move beyond the $74.00 mark and currently trades with only modest intraday gains, just above mid-$73.00s.
Iran, Hamas and the Lebanese group Hezbollah pledged to retaliate against Israel for last week’s assassination of Hamas political chief Ismail Haniyeh in Tehran. This keeps the risk of a broader Middle East conflict in play and fuels concerns about supply disruptions from the key Oil producing region. Apart from this, subdued US Dollar (USD) price action, amid rising bets for a bigger interest rate cut by the Federal Reserve (Fed), turn out to be key factors acting as a tailwind for Crude Oil prices.
The intraday positive move, however, lacks bullish conviction in the wake of worries about an economic downturn and slowing demand in China – the world's top oil importer. Adding to this, the incoming softer US macro data suggested that the world's largest economy was slowing faster than initially expected, which, in turn, could hurt fuel demand. This, in turn, is holding back traders from placing aggressive bullish bets around Crude Oil prices and keeping a lid on any meaningful appreciating move.
The aforementioned mixed fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that the black liquid has bottomed out in the near term. In the absence of any relevant US economic releases on Tuesday, fresh geopolitical developments surrounding the ongoing conflicts in the Middle East will continue to influence Crude Oil prices. Apart from this, the American Petroleum Institute (API) report on US Oil inventory might provide some impetus to 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 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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