WTI depreciates below $68.50, downside appears limited due to rising geopolitical tensions
- WTI may find support as traders assess reports that Israel and Hezbollah exchanged accusations of breaching the ceasefire agreement.
- Russian President Putin warned of a possible nuclear-capable ballistic missile strike on Ukraine.
- Traders seek clarity on the production strategy of the OPEC+ at the rescheduled meeting on December 5.
West Texas Intermediate (WTI) Oil price retraces its recent gains, trading around $68.40 per barrel during the early European hours on Friday. However, this downside of the crude Oil prices could be restrained as markets assess reports that Israel and Hezbollah exchanged accusations of breaching the ceasefire agreement.
Additionally, reports suggest that Russian President Vladimir Putin warned of a possible nuclear-capable ballistic missile strike on Ukraine, following Moscow's recent large-scale attacks on key energy infrastructure.
Traders remained cautious, seeking clarity on the production strategy of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) after a four-day postponement of a key meeting. At the rescheduled meeting on December 5, the alliance will deliberate on whether to proceed with restoring supplies or extend production cuts into 2025 to avoid oversupplying the global market.
Markets are keeping a close watch on upcoming US data for insights into the Federal Reserve's (Fed) monetary policy outlook. Rising borrowing costs in the United States (US), the world’s largest Oil consumer, weigh on economic activity, subsequently reducing Oil demand.
On Wednesday, US core PCE prices for October met expectations, keeping investor hopes alive for another rate cut in December. However, other data indicated a resilient economy, suggesting that the Fed may take a cautious approach in the coming year.
According to the CME FedWatch Tool, futures traders are now pricing in a 66.5% probability of a 25 basis point rate cut in December, up from 55.9% a week ago. However, they expect the Fed to keep rates unchanged during its January and March meetings.
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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