West Texas Intermediate (WTI) crude oil is trading around $58.20 on Tuesday at the time of writing, up 0.90% on the day, extending its upward momentum amid ongoing geopolitical tensions. Crude oil prices are benefiting from renewed risk aversion, as hopes for a quick deal to end the war in Ukraine continue to fade.
US-led discussions have failed to achieve decisive progress, especially on sensitive regional issues. According to information reported by Reuters, Moscow accused Kiev of carrying out a drone attack targeting a presidential headquarters in Russia, which Ukraine denied. This deterioration in the diplomatic backdrop encourages markets to price in greater risks of supply disruption, providing short-term support for the price of US West Texas Intermediate oil.
Geopolitical tensions are not limited to Eastern Europe. Recent comments by US President Donald Trump, indicating possible military action against Iran if certain strategic programs are revived, have also raised concerns about stability in the Middle East, a key region for global energy supplies. This backdrop helps maintain the geopolitical risk premium in the oil market.
However, upside potential remains partly limited by concerns about global supply. The Organization of the Petroleum Exporting Countries and its allies (OPEC+) confirmed a modest increase in production of 137,000 barrels per day starting in December, raising fears of increased supply in the event of weak global demand.
Market participants now turn their attention to the weekly crude oil inventories report from the American Petroleum Institute (API), scheduled for release later in the day.
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.
