WTI climbs amid geopolitical tensions, API stockpile report eyed
- The price of WTI US Oil rises and trades in positive territory on Tuesday
- The lack of concrete progress in talks aimed at ending the war in Ukraine keeps a geopolitical risk premium in the Oil market
- Investors await the weekly US Crude Oil stockpiles report from the API to assess demand conditions
West Texas Intermediate (WTI) US Oil trades around $58.20 on Tuesday at the time of writing, up 0.90% on the day, extending its upward momentum amid persistent geopolitical tensions. Crude Oil prices benefit from renewed risk aversion as hopes for a swift agreement to end the war in Ukraine continue to fade.
US-led discussions have failed to deliver a decisive breakthrough, particularly on sensitive territorial issues. According to information reported by Reuters, Moscow has accused Kyiv of carrying out a drone attack targeting a presidential residence in Russia, an allegation denied by Ukraine. This deterioration in the diplomatic backdrop encourages markets to price in a higher risk of supply disruptions, providing short-term support to the WTI US Oil price.
Geopolitical tensions are not limited to Eastern Europe. Recent comments from US President Donald Trump, referring to possible military action against Iran should certain strategic programs be revived, have also reignited concerns about stability in the Middle East, a key region for global energy supply. This backdrop helps maintain a geopolitical risk premium in the Oil market.
However, upside potential remains partly capped by concerns over global supply. The Organization of the Petroleum Exporting Countries and its allies (OPEC+) have confirmed a modest production increase of 137,000 barrels per day starting in December, fuelling fears of oversupply should global demand weaken.
Market participants now turn their attention to the weekly Crude Oil inventory report from the American Petroleum Institute (API), due later in the day.
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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