WTI Crude’s recovery stalls below $58.00 as oversupply fears remain
- WTI Oil prices dip to $57.60 after rejection at the $58.30 area on Tuesday.
- US Oil inventories rose, and the number of Oil rigs increased in the US last week.
- Rising geopolitical tensions are keeping Oil's downside attempts limited for now.
The recovery of the US benchmark West Texas Intermediate from $56.60 lows last week was capped on Tuesday at $58.30 before retreating to levels near $57.60 in Wednesday’s early European session. A somewhat stronger US Dollar and downbeat EIA Inventory figures have offset the positive impact of the geopolitical frictions in sensitive areas of the globe.
The US Dollar is drawing some support from the release of the minutes of the last Federal Reserve monetary policy meeting. The bank cut interest rates by 25 basis points, as widely expected, but the high number of dissenters and policymakers' concerns about inflation have cast doubts on the timing of the next interest rate cut.
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Furthermore, the US Energy Information Agency (EIA) reported that commercial crude Oil inventories increased by 400K barrels in the week of December 26, to 424.8 million barrels, despite the higher demand due to the Christmas holiday. These figures, coupled with a further increase in Oil drilling, reported by the Baker Hughes Oil Rig Count report, also released on Tuesday, increased negative pressure on prices.
Crude Oil, however, holds most of the ground taken over the last few days, as the waning hopes of an upcoming peace deal between Russia and Ukraine, and sabre-rattling between Israel and Iran keep prices supported.
Also on Tuesday, delegates from OPEC+, an organisation including most of the world's largest Oil producers, reaffirmed their plans to pause Oil output hikes over the coming months to support market stability amid growing concerns of an oversupply. The positive impact on prices, however, was minimal.
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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