WTI slumps to near $61 as Moody’s US downgrade sparks US bond yields
- The Oil price faces a sharp selling pressure as US bond yields have risen sharply after Moody’s downgraded US Sovereign rating.
- 10-year US Treasury yields surge to near 4.54%.
- China’s Industrial Production and Retail Sales grew moderately in April.
West Texas Intermediate (WTI), futures on NYMEX, tumbles to near $61.00 on Monday. The Oil price faces selling pressure since opening the week due to a significant increase in US Treasury yields. Interest on US government securities has surged substantially as Moody’s Rating has downgraded the United States (US) long-term issuer and senior unsecured securities from Aaa to Aa1.
10-year US Treasury yields are up 2.3% to near 4.54%, a move that could limit the administration from increasing fiscal expenditure, which will weaken the demand for Oil.
The report from Moody’s rating showed that the agency downgraded the US Sovereign credit rating in the wake of mounting debt, which has been a deteriorating fiscal status. Additionally, the credit rating firm stated that swelling government debt and interest payments, now materially above peers in the same rating tier, forced it to revise the credit rating.
The US downgrade has resulted in a sharp decline in the US Dollar (USD). The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, plummets to near 100.20.
Meanwhile, weak China data has also weighed on the Oil price. Earlier in the day, the National Bureau of Statistics of China reported that Industrial Production and Retail Sales grew at a moderate pace in April. Industrial Production rose by 6.1% year-on-year, slower than 7.7% growth in March. In the same period, Retail Sales expanded moderately by 5.1%, compared to estimates of 5.5% and the prior release of 5.9%.
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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