WTI strives to break above $60 on hopes of de-escalation in US-China trade war
- The Oil price aims to extend recovery above $60.00 on hopes that the US-China trade war has peaked out.
- The US and China are set to meet for trade discussions this week.
- OPEC+ has announced that it will speed up oil production at a higher rate.
West Texas Intermediate (WTI), futures on NYMEX, aims to extend its two-day recovery move above the key resistance of $60.00 during European trading hours on Wednesday. The outlook for the Oil price has improved in the near term on hopes of a de-escalation in the trade war between the United States (US) and China.
On Tuesday, US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer confirmed that they will meet their Chinese counterparts for trade and economic discussions this week in Switzerland.
Bessent signaled that discussions will be more about de-escalating the tariff war, as high-level duties imposed by both nations on each other are not sustainable in the long run. My sense is that this will be about de-escalation, not about the big trade deal,” Bessent said, according to CNBC.
Currently, the US and China have increased tariffs on each other by 145% and 125%. Initially, the US imposed a 54% additional levy on China, inclusive of a 20% tariff punishment for pouring drugs into America, and increased to 145% after Beijing retaliated with counter-tariffs.
Diminishing fears of a US-China trade war are favorable for the Oil price, given that China is the largest importer of Oil in the world.
Meanwhile, the OPEC+ decision to speed up the unwinding of phased-out production cuts by 2.2 million barrels per day (bpd) since September 2022 would limit the upside in the Oil price. Over the weekend, the oil cartel announced that it will accelerate the pace of production hikes to 960,000 in June due to non-compliance with OPEC+ rules by Kazakhstan. In late April, Kazakhstan said that capacity underutilization due to quotas imposed by the OPEC+ is harming its oil fields, and it will prioritize its national interest over the group’s objectives.
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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