The price of West Texas Intermediate (WTI) crude oil rose to nearly $57.70 during European hours on Friday. Crude oil prices rose amid potential supply concerns stemming from escalating geopolitical tensions.
Kiev has intensified its attacks on Russian energy infrastructure in recent months to obstruct Moscow’s military financing. Meanwhile, Russia and Ukraine traded accusations over civilian attacks on New Year’s Day, despite intensified US-led talks under President Donald Trump to end the nearly four-year-old conflict.
The U.S. Treasury on Wednesday imposed sanctions on Panama-flagged Nordstar, Guinea-flagged Lunar Tide, and Hong Kong-flagged Dela, for allegedly transporting Venezuelan crude or fuel this year to Asia and the Caribbean, helping President Maduro’s government evade sanctions, including four tankers linked to the so-called “shadow fleet,” according to Reuters.
The measures prevented sanctioned ships from entering or leaving Venezuela, forcing state oil company PDVSA to take drastic steps to avoid shutting down refineries as remaining fuel stocks pile up.
US crude oil inventories fell by 1.934 million barrels last week, the largest decline since mid-November and well above expectations for a decline of 0.9 million barrels, the US Energy Information Administration said on Wednesday.
Traders are looking forward to a virtual meeting of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) scheduled for Sunday, with expectations that the group will stick to its decision made in November to pause further production increases.
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.
