WTI holds above $70.00 amid Fed rate cut optimism and supply disruptions
- WTI extends the rally to nearly $70.85 in Wednesday’s early Asian session.
- Rising Fed rate cut bets and oil supply disruptions underpin the WTI price.
- China's demand worries might limit the black gold’s upside.
West Texas Intermediate (WTI), the US crude Oil benchmark, is trading around $70.85 on Wednesday. WTI price edges higher amid supply disruptions in the Gulf of Mexico and the hope that the Federal Reserve (Fed) will cut interest rates on Wednesday.
The Bureau of Safety and Environmental Enforcement reported that US crude oil around 100,000 barrels per day, remained offline in the Gulf as of Tuesday due to Hurricane Francine. Additionally, the supply disruption in Libya amid a rift between rival factions over control of the central bank has led to lower oil output and lifted the WTI price.
“Supply disruptions are making their mark, including Hurricane Francine’s impact on US Gulf of Mexico infrastructure,” said Svetlana Tretyakova, senior analyst at Rystad Energy.
Expectations of a Fed rate cut could revitalize demand in the top oil-consuming nation. The market ramps up expectations for a jumbo 50 basis points (bps) cut at the September Fed meeting on Wednesday, with nearly 67% odds pricing in, up from 30% a week ago.
The US crude inventories climbed last week. According to the American Petroleum Institute (API), crude oil stockpiles in the United States for the week ending September 13 increased by 1.96 million barrels, compared to a decrease of 2.79 million barrels in the previous week. The market consensus estimated that stocks would decline by just 0.1 million barrels.
On the other hand, IG market strategist Yeap Jun Rong noted that the recent weaker-than-expected Chinese economic data dampened market sentiment, with the low-for-longer growth outlook in the world's second-largest economy reinforcing doubts over oil demand. The concerns about oil demand in China are likely to limit the WTI’s upside for the time being.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. 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 impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.