US West Texas Intermediate (WTI) crude oil prices have rebounded from the $58.70 area, or the one-week low they reached during the Asian session, and filled a significant portion of the bearish gap that opened on Monday. The commodity is currently trading around the $59.20 area, down just 0.15% on the day, amid mixed signals.
It turns out that ongoing concerns about a potential US military strike against Iran, which could disrupt oil supplies, were a major factor acting as a tailwind to the black liquid. In fact, the US Navy aircraft carrier USS Abraham Lincoln has moved westward after operating in the South China Sea, and was expected to arrive in the Persian Gulf this week. This keeps geopolitical risks at bay and provides support to crude oil prices.
However, the upside potential appears limited amid expectations that US control of Venezuelan oil is likely to increase global supplies. US President Donald Trump said earlier this month that Venezuela would deliver between 30 to 50 million barrels of high-quality, sanctioned oil to the United States. Furthermore, Trump reportedly plans to control the Venezuelan oil industry for several years to come.
This may prevent traders from placing aggressive bullish bets on crude oil prices amid relatively weak trading volumes on the back of the holiday in the US. Therefore, it would be wise to wait for strong follow-through buying before confirming that the recent pullback from the highest level in almost three months, levels just above the $62.00 mark touched last week, has run its course and is paving the way for further gains.
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.
