WTI Oil’s reversal extends below $63.00 on concerns about demand
- Crude prices drop below $63.00 amid ongoing concerns about an oversupply.
- Investors' fears of an economic slowdown in the US have outweighed the Federal Reserve's dovish turn.
- WTI prices are 18% below July highs and n20% below mid-January highs.
Crude Oil is trading lower for the third consecutive day on Friday, as investors remain wary about an Oil glut amid the weak outlook for global demand. The US Benchmark WTI has retreated below $63.00 on Friday’s European session, after peaking at $64.40 earlier this week.
The rate cut announced by the Federal Reserve and its dovish stance have failed to ease investors’ fears that the weaker global demand, coupled with the steady output hikes by producing countries, will lead to an oversupply in the mid-term.
EIS Oil Stock's plunge was ignored by the market
The market also shrugged off a sharp decline in US EIA Oil stocks, which dropped by 9,285 million barrels in the week of September 12, beating expectations of a 1.5 million barrel decline, and following a 3.93 M buildup in the previous week.
The increase in distillate inventories, up by 4 million barrels in the second week of September, and beating expectations of a 1 million increase, keeps market concerns about the demand of the world’s major Oil consumers alive.
From a wider perspective, WTI Oil prices have been trading between $61.36 and $65.60 since early August, when the deterioration of the US labour market became evident. WTI prices are 18% lower than July highs and about 20% below mid-January highs.
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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