WTI Oil remains depressed below $65.00 on easing supply concerns
- The Middle East ceasefire halted concerns over supply and triggered a 16% decline in Oil prices.
- With geopolitical fears out of the way, the prospects of a weaker demand are weighing on Crude prices' recovery.
- A hawkish Fed Powell in Tuesday's testimony to Congress added negative pressure on prices.
Crude Oil is consolidating losses on Wednesday, after having depreciated more than $10 from Monday’s highs. The ceasefire in the Middle East has eased concerns about an Oil supply disruption, which keeps the price of the barrel for the US benchmark WTI capped below the $65.00 level.
The Truce between Israel and Iran seems fragile, but is holding for the second day. Iran’s Oil supply capacity does not seem to have been affected by Israel’s bombings, and the threat of a blockade of the key Strait of Hormuz gateway has been pushed away for now. All these circumstances have contributed to bringing prices back to pre-war levels.
Market concerns about weak Oil demand remain alive
Apart from that, concerns about demand remain alive. The US economy keeps showing signs of slowdown. Consumer confidence deteriorated in June, according to data released on Tuesday, which confirmed the grim picture anticipated by previous macroeconomic releases.
The Eurozone is stagnating, and China’s recovery seems elusive. In this context, the OPEC+ countries’ plans to keep hiking supply might lead to an Oil glut.
Also on Tuesday, Fed Chairman Jerome Powell refused to signal any rate cut in the near term as he said, upside risks on inflation stemming from Trump’s tariffs remain high. The restrictive Fed policy is weighing on economic activity and demand for Oil, adding negative pressure on prices.
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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