WTI clings to gains above $82.00 in countdown to US NFP
- WTI holds gains above $82.00 with US NFP in focus.
- Larger-than-expected drawdown in oil inventories for the week ending June 28 keeps supporting the downside in the Oil price.
- US labor market strength appears to have started easing.
West Texas Intermediate (WTI), futures on NYMEX, steady above $82.00 in Thursday’s European session as month-long rally from June 4 low of $72.45 appears to have stalled for the time-being. The Oil price struggles to extend its upside even though the United States (US) Energy Information Administration (EIA) reported a larger-than-expected drawdown in crude inventories for the week ending June 28.
The agency reported that Oil stockpiles declined by 12.16 million barrels after a build-up of 3.59 million barrels previously. A sharp decline in Oil stockpiles suggests robust demand environment, which is favorable for the Oil price.
The near-term outlook of the Oil price remains firm amid growing speculation that the Federal Reserve (Fed) will start reducing interest rates from the September meeting. The expectations for early Fed rate cuts soar after US ADP Employment data for June indicated that the labor market is losing momentum.
This has also weighed heavily on the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slides further to near 105.20. Weakness in the US Dollar makes the Oil price an attractive bet for market participants.
The next trigger for the Oil price will be the US Nonfarm Payrolls (NFP) for June, which will be published on Friday. Strong labor demand would ease Fed rate-cut prospects for September while soft figures will boost them.
Meanwhile, concerns over supply chain disruptions remain intact amid tensions in the Middle East region. Also, major U.S. oil and gas platforms are also in Hurricane Beryl's path, which is expected to affect about 73,000 barrels per day of offshore oil production, the ANZ Bank reported.
Brent Crude Oil FAQs
Brent Crude Oil is a type of Crude Oil found in the North Sea that is used as a benchmark for international Oil prices. It is considered ‘light’ and ‘sweet’ because of its high gravity and low sulfur content, making it easier to refine into gasoline and other high-value products. Brent Crude Oil serves as a reference price for approximately two-thirds of the world's internationally traded Oil supplies. Its popularity rests on its availability and stability: the North Sea region has well-established infrastructure for Oil production and transportation, ensuring a reliable and consistent supply.
Like all assets supply and demand are the key drivers of Brent Crude 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 Brent 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 Brent Crude 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 Brent Crude 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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