WTI drifts higher above $63.50 after US shoots down Iranian drone
- WTI price gains ground to near $63.75 in Wednesday’s Asian session.
- The US military said it shot down an Iranian drone that ‘aggressively approached’ an aircraft carrier.
- US crude oil inventories fell the most since August 2023.
West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $63.75 during the Asian trading hours on Wednesday. The WTI price edges higher amid fears of rising tensions between the United States (US) and Iran. Traders brace for the release of the US Energy Information Administration (EIA) crude oil stockpiles report on Wednesday.
CNBC reported on Tuesday that the US military shot down an Iranian drone that "aggressively" approached the USS Abraham Lincoln aircraft carrier in the Arabian Sea. This event took place at a time when tensions in the Middle East are high, with US President Donald Trump considering military attacks against Iran.
Additionally, Iran demanded that talks with the US this week take place in Oman rather than Turkey and that the scope be limited to two-way conversations on the nuclear issue only, complicating an already delicate diplomatic effort. Any signs of escalating tensions between the US and Iran, OPEC’s fourth-largest crude oil producer, could boost the WTI price in the near term.
According to the American Petroleum Institute (API) weekly report, crude oil stockpiles in the US for the week ending January 30 fell by 11.1 million barrels, compared to a decline of 250,000 barrels in the previous week. The market consensus was for an increase of 700,000 barrels. The significant drop in crude inventories could provide some support to the WTI price.
On the other hand, a renewed US Dollar (USD) demand might cap the upside for the USD-denominated commodity price. US President Donald Trump nominated Governor Kevin Warsh to serve as the next Chairman of the US Federal Reserve (Fed). Traders anticipate a slower pace of interest rate cuts under his tenure and a focus on shrinking the Fed's balance sheet.
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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