- WTI attracts some buyers amid geopolitical risks arising from conflicts in the Middle East.
- Expectations of a Fed rate cut in September weaken the USD and further benefit the commodity.
- Concerns over weak demand in China curb further gains ahead of Fed meeting.
US West Texas Intermediate (WTI) crude oil prices are starting the new week on a positive note and reversing some of Friday’s heavy losses, back to near the lowest level since June 10, around the $75.75 region touched the previous day. However, the commodity is struggling to maintain momentum beyond the $77.00/barrel mark, warranting some caution before positioning for any further upside move.
A rocket attack in the Israeli-occupied Golan Heights on Saturday, which killed 12 teenagers and children, raised fears of an all-out war between Israeli forces and Hezbollah in Lebanon. Moreover, concerns that a wider conflict in the Middle East will disrupt global crude supplies in the key production region are proving to be a key factor driving flows into the black liquid. Apart from this, a modest weakness in the US dollar (USD), driven by bets of an imminent start of the Federal Reserve (Fed) policy easing cycle, lends additional support to crude oil prices.
Investors now appear convinced that the U.S. central bank will begin cutting borrowing costs in September and cut interest rates twice more before the end of the year. Bets were boosted by the release of the U.S. Personal Consumption Expenditure (PCE) Price Index on Friday, which showed inflation rose modestly in June and added signs of easing price pressures. Additional details in the report revealed that consumer spending slowed somewhat last month, suggesting growth in the world’s largest economy is slowing amid a cooling labor market.
This is on top of slow growth in China, the world’s largest oil importer, and concerns over falling fuel demand, which, in turn, could limit the commodity’s upside. Traders might also prefer to wait for the outcome of the FOMC’s two-day monetary policy meeting on Wednesday, which will play a key role in influencing USD price dynamics and provide a significant boost to crude oil prices. This makes it prudent to wait for strong follow-through buying before confirming that the black liquid has effectively formed a short-term bottom.
WTI Oil FAQs
WTI crude oil is a type of crude oil sold on international markets. WTI stands for West Texas Intermediate, one of three main types that include Brent and Dubai crude. WTI is also known as “light” and “sweet” for 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 through the Cushing hub, considered “the pipeline crossroads of the world.” It is a benchmark for the oil market and the price of WTI is frequently quoted in the media.
Like all assets, supply and demand are the main factors determining the price of WTI crude oil. As such, global growth can be a driver of increased demand and vice versa in the case of weak global growth. Political instability, wars and sanctions can disrupt supply and impact prices. Decisions by OPEC, a group of large oil producing countries, are another key driver of price. The value of the US Dollar influences the price of WTI crude oil, as oil is primarily traded in US Dollars, so a weaker 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) influence the price of WTI oil. Changes in inventories reflect fluctuations in supply and demand. If the data show a decrease in inventories, it may indicate an increase in demand, which would push up the price of oil. An increase in inventories may reflect an increase in supply, which pushes down prices. The API report is published every Tuesday, and the EIA report the following day. Their results are usually similar, with a difference of 1% between them 75% of the time. The EIA data is considered more reliable because it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 oil-producing nations that collectively decide on member countries’ production quotas at biennial meetings. Their decisions often influence WTI oil prices. When OPEC decides to reduce quotas, it can restrict supply and drive up oil prices. When OPEC increases production, the opposite effect occurs. OPEC+ is an expanded group that includes ten other non-OPEC countries, most notably Russia.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
