The price of West Texas Intermediate (WTI) crude oil stabilized after recording modest losses in the previous trading session, hovering near $57.50 during the Asian hours on Friday. Traders are awaiting the virtual meeting of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) scheduled to be held on Sunday, with expectations that the group will adhere to its decision taken in November to temporarily halt further production increases.
Oil prices may rise on potential supply concerns amid rising geopolitical tensions. Ukrainian drones reportedly bombed Russian oil facilities, while Russia and Ukraine accused each other of attacks on civilians on New Year’s Day, despite intense talks overseen by US President Donald Trump aimed at ending the nearly four-year-old conflict.
Reuters reported that the US Treasury Department announced on Wednesday sanctions on oil traders accused of helping Maduro’s Venezuelan government evade restrictions, including four tankers allegedly part of the so-called “shadow fleet.”
The Panama-flagged Nordstar, Guinea-flagged Lunar Tide and Hong Kong-flagged tankers, which were sanctioned on Wednesday, transported Venezuelan crude or fuel this year to destinations in Asia and the Caribbean.
The measures prevent sanctioned ships from entering or leaving Venezuela, forcing state oil company PDVSA to adopt strict measures to avoid shutting down refineries as remaining fuel stocks build up.
US Energy Information Administration data showed US crude inventories fell by 1.934 million barrels last week, the largest decline since mid-November and much higher than expectations for a decline of 0.9 million barrels.
Frequently asked questions about West Texas Intermediate crude oil
West Texas Intermediate oil is a type of crude oil that is sold in international markets. WTI stands for WTI, and is one of three main types including Brent and Dubai crude. WTI is also referred to as “light” and “sweet” due to its relatively low gravity and sulfur content, respectively. It is considered a high quality oil and easy to refine. It is sourced from the United States and distributed through the Cushing Hub, considered the “pipeline crossroads of the world.” It is a benchmark for the oil market and the price of WTI is frequently quoted in the media.
Like all assets, supply and demand are the main drivers of the price of WTI. 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 affect prices. Decisions by OPEC, a group of major oil-producing countries, are another major driver of the price. The value of the US dollar affects the price of WTI, as oil is mostly traded in US dollars, so a weak US dollar can make oil more affordable and vice versa.
Weekly oil inventory reports from the American Petroleum Institute (API) and the Energy Information Agency (EIA) influence the price of WTI. Changes in inventories reflect fluctuations in supply and demand. If data shows a decline in inventories, this could indicate increased demand, leading to higher oil prices. High inventories can reflect increased supply, causing prices to fall. The API report is published every Tuesday and the EIA report the next day. Their results are usually similar, falling within 1% of each other 75% of the time. EIA data is more reliable, because it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 oil-producing countries that collectively decides production quotas for member countries at meetings held twice a year. Their decisions often affect WTI prices. When OPEC decides to cut its quotas, it can tighten supply, causing oil prices to rise. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten additional non-OPEC members, most notably Russia.
