West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $58.15 during Asian trading hours on Wednesday. WTI rose on expectations of an interest rate cut by the US Federal Reserve (Fed) and a broadly weak US dollar (USD). Traders are preparing for the release of the Energy Information Administration (EIA) crude oil inventories report later on Wednesday.
The US dollar fell as traders increased their bets on a US interest rate cut at the December monetary policy meeting. This provides some support to US dollar-denominated commodity prices because it makes oil cheaper for foreign buyers.
Data released by Automatic Data Processing (ADP) on Tuesday showed that private companies shed an average of 13,500 jobs over the past four weeks, indicating more signs of weakness in the US labor market. According to the CME FedWatch tool, markets have priced in a roughly 85% chance of a quarter-percentage point cut from the Fed in December, up from 80% odds earlier this week.
On the other hand, the potential upside for the WTI price may be limited due to progress towards the peace agreement between Russia and Ukraine. Reuters reported on Wednesday that Ukrainian President Volodymyr Zelensky may visit the United States in the next few days to finalize an agreement with US President Donald Trump to end the war.
Data released by the American Petroleum Institute (API) on Tuesday showed that US crude oil inventories for the week ending November 21 fell by 1.9 million barrels compared to a rise of 4.4 million barrels the previous week. So far, U.S. crude oil inventories show a net gain of 7.4 million barrels for the year, according to Oil Price’s calculations of American Petroleum Institute data.
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.
