WTI extends upside above $62.50 geopolitical risks, supply fears
- WTI price climbs to around $62.80 in Wednesday’s early Asian session.
- Rising geopolitical risks and supply fears support the WTI price.
- OPEC+ decided to raise output by 411K bpd in July.
West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $62.80 during the Asian trading hours on Tuesday. The WTI price extends the rally to two-week highs amid persistent geopolitical tensions and a weaker US Dollar (USD). Traders will take more cues from the EIA Crude Oil stockpiles report, which is due later on Wednesday.
A Russian official said on Tuesday that the work on reaching a settlement to end the war in Ukraine was complicated and that it would be wrong to expect any imminent decisions but that it was waiting for Ukrainian reaction to its proposals. Meanwhile, Iran is poised to reject a US proposal to end a decades-old nuclear dispute after the US draft insisted that Tehran would have to suspend the enrichment of uranium inside Iran.
"Risk premium has ramped up this week as the prospect of a Russia/Ukraine ceasefire as well as an Iranian nuclear deal now appear to have been pushed back for weeks if not months," said analysts at energy advisory firm Ritterbusch and Associates.
The Organization of the Petroleum Exporting Countries and its allies (OPEC+) decided to increase their production again on Saturday. OPEC+ planned to raise production at a steady rate by 411,000 barrels per day (bpd) in July, following an increase in May and June. The group noted in a statement that a “steady global economic outlook and current healthy market fundamentals, as reflected in the low oil inventories” was its reasoning for the July increase.
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.
Oil traders await the highly anticipated US Nonfarm Payrolls (NFP) report for May, which will be released later on Friday. The NFP is expected to show job growth of 130K in May, while the Unemployment Rate is projected to remain steady at 4.2% in the same report period. In case of a stronger-than-expected outcome, this could lift the Greenback and cap the upside for the WTI as it makes oil more expensive for holders of other currencies.
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