WTI declines to near $73.00 despite higher energy demand, UAE's supply cuts
- WTI continues to decline despite rising energy demand fueled by colder weather and Beijing's economic stimulus efforts.
- Oil prices could gain support as OPEC's oil production fell in December, largely driven by the UAE's supply cuts.
- Biden administration plans to impose further sanctions to target Russian Oil revenues.
West Texas Intermediate (WTI) Oil price extends its losses for the second successive session, trading around $72.90 per barrel during the Asian hours on Tuesday. However, crude Oil prices were bolstered by bullish factors, including higher energy demand driven by colder weather and Beijing's economic stimulus measures.
Crude Oil prices may find support as the Organization of the Petroleum Exporting Countries (OPEC) Oil production declined in December, primarily due to the United Arab Emirates (UAE) efforts to implement supply cuts to stabilize global Oil markets, according to Bloomberg (gated). Output dropped by 120,000 barrels per day (bpd) to 27.05 million bpd, with modest increases in Libya and Nigeria offset by decreases in Iran and Kuwait, as reported by a Bloomberg survey.
This development comes against the backdrop of OPEC+, Organization of the Petroleum Exporting Countries, and its allies, led by Saudi Arabia, limiting production in recent years to support prices amid weak demand and abundant US supplies. In their most recent meeting, the group further delayed plans to restore output.
US President Joe Biden is set to ban new offshore Oil and Gas development along most US coastlines, a decision that President-elect Donald Trump, who has pledged to increase domestic energy production, may find challenging to overturn. The move is largely symbolic, as it will not affect regions where Oil and Gas development is already underway.
Additionally, the Biden administration plans to impose further sanctions on Russia in response to its war on Ukraine. According to three sources cited by Reuters, these measures will target Russia's Oil revenues, including actions against tankers transporting Russian crude.
Beijing's economic stimulus efforts are bolstering Oil demand in the world's largest crude importer. In a bid to revive its struggling economy, Beijing is ramping up fiscal stimulus, announcing on Friday that it will significantly boost funding through ultra-long-dated treasury bonds in 2025 to stimulate business investment and initiatives aimed at boosting consumer spending.
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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