US West Texas Intermediate (WTI) crude oil prices started the new week on a positive note and touched a one-week high around the $57.00 region during the Asian session. However, the intraday rally lacks bullish conviction amid a range of disparate forces.
The United States intercepted a Venezuelan oil tanker over the weekend. Additionally, a US official said the US Coast Guard is actively pursuing a dark fleet sanctioned vessel that is part of illegal sanctions evasion in Venezuela. This comes on top of new tensions between Israel and Iran and the protracted war between Russia and Ukraine, which increases the geopolitical risk premium and is therefore seen as a major factor acting as a tailwind for crude oil prices.
Israeli Prime Minister Benjamin Netanyahu said officials are concerned that Iran is expanding production of its ballistic missiles, and are preparing to brief US President Donald Trump on options for attacking the missile program again. Moreover, Russian President Vladimir Putin’s top foreign policy aide said on Sunday that changes made by the Europeans and Ukraine to the US proposals did not improve the chances for peace.
However, continuing concerns about oversupply, combined with an uncertain global demand outlook, may prevent traders from placing aggressive bullish bets and limit crude oil prices. This makes it wise to wait for a strong buying follow-through before ensuring that the black liquid has formed a near-term bottom around the $55.00-$54.90 area or the lowest level since April, which was touched last week, and put it in a position for further upside.
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.
