WTI trades with modest losses around $73.25 area, down nearly 0.50% for the day
- WTI struggles to capitalize on the overnight bounce from a multi-week top.
- Worries that a global trade war could dent demand weigh on Crude Oil prices.
- A smaller-than-expected rise in US inventories helps limit any further losses.
West Texas Intermediate (WTI) US Crude Oil prices tick lower during the Asian session on Wednesday and erode a part of the previous day's modest recovery gains from a nearly three-week low. The commodity currently trades around the $71.00 mark, down over 0.25% for the day, and seems vulnerable to prolonging its recent downfall witnessed over the past two weeks or so.
Investors remain concerned that US President Donald Trump’s threat to impose trade tariffs against Canada, China, and Mexico by February 1 could dent fuel demand. Moreover, the official Chinese PMIs released on Monday pointed to sustained weakness in the world's second-largest economy and the world’s biggest oil importer, which, in turn, is seen undermining the black liquid. Crude Oil prices are also pressured by Trump's planning for increased energy production in the US and demand that the Organization of Petroleum Exporting Countries increase production to bring down prices.
The downside in Crude Oil prices, however, remains cushioned in the wake of a slightly smaller-than-expected build in US inventories. In fact, the American Petroleum Institute reported on Tuesday that US oil inventories grew by 2.86 million barrels in the week to January 24 and raised expectations for a similar trend from the official inventory data, due later this Wednesday. Traders also seem reluctant to place aggressive directional bets and opt to wait on the sidelines heading into the key central bank event risk – the outcome of the highly-anticipated two-day FOMC monetary policy meeting.
The Federal Reserve (Fed) is widely expected to stand pat and stick to its hawkish stance. This assists the US Dollar (USD) to preserve the overnight recovery gains from over a one-month low and might continue to act as a headwind for the commodity. Meanwhile, the Fed's policy outlook will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to Crude Oil prices later during the US session.
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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