- WTI attracts some dip-buyers on Tuesday, though it lacks any strong follow-through.
- Easing supply disruption fears and trade war concerns cap gains for the commodity.
- Geopolitical risk premium and a bearish USD act as a tailwind for the black liquid.
West Texas Intermediate (WTI) US Crude Oil prices edge higher during the Asian session on Tuesday, though the intraday uptick lacks bullish conviction. The commodity remains below a two-week high touched last Friday and currently trades around the $62.80-$62.85 region, up just over 0.30% for the day.
Signs of progress in nuclear deal talks between the US and Iran helped ease supply concerns, which, in turn, was seen as a key factor behind the overnight slide in Crude Oil prices. In fact, the US and Iran agreed on Saturday to commence expert-level discussions to design a framework for a potential nuclear deal. The expert meetings are scheduled on Wednesday, with a follow-up session planned for Saturday to assess progress.
Adding to this worries that an all-out trade war would trigger a global recession and dent fuel demand contributes to capping the upside for the black liquid. However, the geopolitical risk premium remains in play on the back of the protracted Russia-Ukraine war. This, along with the underlying bearish sentiment surrounding the US Dollar (USD), acts as a tailwind for the USD-denominated commodities, including Crude Oil prices.
Meanwhile, Trump accused Federal Reserve (Fed) Chair Jerome Powell of not moving fast enough to bring down interest rates. Moreover, the White House suggested that Trump and his team are studying if they could fire Powell, raising doubts over the Fed's independence. This comes on top of the weakening investors' confidence in the US economy and fails to assist the USD to register any meaningful recovery from a three-year low set on Monday.
The aforementioned mixed fundamental backdrop warrants some caution before placing aggressive directional bets around Crude Oil prices. Traders might also opt to wait for the release of the flash PMIs on Wednesday for cues about the global economic health, which, in turn, should provide some meaningful 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 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.
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