WTI Oil pulls back and hits lows sub-$87 amid bets of a steeper Fed tightening cycle
- WTI Oil retreats below $87.00 on Friday after being capped at $88.20.
- Market expectations that a steeper Fed tightening pace will limit US Oil consumption are weighing on prices.
- US Oil stocks data revealed unexpected buildups in the week of November 6, contributing to ease concerns about supply.
Oil prices show a moderate pullback on Friday as market expectations that a more aggressive Federal Reserve (Fed) monetary tightening will cap Oil consumption in the US have offset concerns about the stalled Middle East conflict. The US benchmark West Texas Intermediate (WTI) Oil eases 1.2% in the day, following a more than 3% rebound on Thursday, and reaches session lows below $87.00.
Recent US Consumer Price Index (CPI) data released earlier this week has triggered speculation, supported by comments from key Fed officials, that the US central bank might deliver a half-point rate hike in December and accelerate its monetary tightening pace over the coming months. This would curb US economic growth and, most likely, weigh on Oil consumption.
US Oil stocks increase against expectations
Beyond that, data from the US Energy Information Administration (EIA) revealed that Crude Oil stocks increased by 4,657 million barrels in the week ending on November 6, against market expectations of a 1.1 million barrel drawdown and following a 0.8 million barrel drop in the previous week.
These numbers follow a similar outcome in a previous report by the American Petroleum Institute (AIP) and have contributed to easing concerns about an Oil shortage, at least for now.
News from the Middle East, on the other hand, is keeping Crude Oil prices from retreating further. Diplomatic efforts to bring Washington and Tehran back to the negotiating table seem stalled, and US President Trump crushed remaining hopes of a breakthrough, affirming that “we don’t need a deal with Iran.”
Trump also affirmed that the US controls the Strait of Hormuz, but attacks on vessels attempting to cross the waterway, which carried about 20% of the global supply before the war, have increased over the last few weeks, casting serious doubts about the credibility of that statement.
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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