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19 Sep 2024
WTI rises to near $69.50, upside seems limited due to subdued response after Fed decision
- WTI price gains ground but the overall market response has been relatively muted following the Fed rate cut.
- The Federal Open Market Committee reduced the federal funds rate to a range of 4.75% to 5.0%.
- US Crude Oil Stocks Change decreased by 1.63 million barrels the previous week, far exceeding the expected draw of 0.1 million barrels.
West Texas Intermediate (WTI) Oil price retraces its recent losses from the previous session, trading around $69.50 per barrel during the Asian hours on Thursday. The US Federal Reserve’s (Fed) decision to cut interest rates by 50 basis points, more than anticipated, provided support to Oil prices, though the overall market response has been relatively muted.
According to a Reuters report, ANZ analysts commented in a note, "The 50 basis point cut suggests significant economic challenges ahead, but bearish investors were left disappointed as the Fed also raised its medium-term outlook for rates."
The Federal Open Market Committee (FOMC) reduced the federal funds rate to a range of 4.75% to 5.0%, marking the Fed’s first rate cut in over four years. This decision underscores the Fed’s dedication to protecting the labor market and preventing the economy from slipping into recession. Lower borrowing costs could enhance the economic outlook in the United States, the world’s largest crude consumer, potentially supporting Oil demand.
Fed Chair Jerome Powell stated during a press conference after the monetary policy meeting, “This decision signifies our increased confidence that, with the right adjustment to our policy approach, we can sustain a strong labor market while achieving moderate economic growth and bringing inflation down to a sustainable 2% level.”
Additionally, WTI Oil prices may have found support after the US Energy Information Administration (EIA) reported a larger-than-expected decline in Crude Oil Stocks Change, which dropped by 1.63 million barrels to 417.5 million, far exceeding the forecasted 0.1 million-barrel draw for the week ending September 13. This swings from a previous stock increase of 0.833 million barrels.
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.