WTI softens below $71.00, ongoing geopolitical tensions might cap its downside
- WTI price drifts lower to near $70.80 in Friday’s Asian session.
- Ongoing Middle East geopolitical tensions, prospects of further Fed rate cuts this year could support the WTI price.
- The weaker oil demand in China might weigh on the WTI.
West Texas Intermediate (WTI), the US crude Oil benchmark, is trading around $70.80 on Friday. WTI price edges lower amid some profit-taking. However, the downside of the WTI price might be limited as geopolitical tensions in the Middle East continue to escalate and the Federal Reserve (Fed) is likely to cut more interest rates in the months to come.
Israeli warplanes and artillery attacked Hezbollah in southern Lebanon on Thursday. The action came after the militia's pagers and walkie-talkies exploded last week, killing scores and injuring thousands across Lebanon, according to CNBC. “We continue to highlight Lebanon as the main pathway to oil disruption through direct Iranian involvement in a wider regional war,” said Helima Croft, head of global commodity strategy at RBC Capital Markets.
The US Fed decided to cut its interest rates by half a percentage point at its September meeting on Wednesday. The new "dot plots" suggest a gradual easing cycle, with the 2024 median revised to 4.375% versus the 5.125% projection in June. Lower interest rates generally support the WTI price as it reduces the cost of borrowing, which can boost economic activity and oil demand.
Declining US crude stockpiles might support oil prices in the near term. According to the US Energy Information Administration (EIA), crude oil stockpiles in the United States for the week ending September 13 decreased by 1.63 million barrels, compared to a decline of 0.833 million barrels in the previous week. The market consensus estimated that stocks would decline by just 0.1 million barrels.
On the other hand, the concerns about weaker oil demand and the economic slowdown in China might cap the black gold’s upside. Statistics Bureau data showed Chinese Industrial Production growth slowed to a five-month low in August and Retail Sales weakened further.
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 13 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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