WTI trades with modest losses below $83.00 mark, downside potential seems limited

July 4, 2024 4:20 am

  • WTI attracts some sellers on Thursday amid concerns about slowing global fuel demand. 
  • Escalating geopolitical tensions fuels supply concerns and lends support to the commodity.
  • September Fed rate cut bets undermine the USD and further help limit losses for Oil prices.

West Texas Intermediate (WTI) US crude Oil prices tick lower during the Asian session on Thursday, albeit lack follow-through selling and remain well within the striking distance of the highest level since April 26 touched earlier this week. The commodity, meanwhile, remains confined in a three-day-old trading band and is currently placed just below the $83.00 round-figure mark. 

The US data released on Wednesday pointed to signs of weakness in the labor market and some cooling in the economy. This comes on top of China’s economic woes and adds to concerns about a slowdown in global economic growth. This, in turn, is anticipated to dent long-term fuel demand and is seen as a key factor exerting downward pressure on Crude Oil prices. That said, persistent supply risk stemming from the ongoing conflicts in the Middle East should act as a tailwind for the black liquid. 

In fact, tensions between Israel and Lebanon’s Hezbollah, so far, have shown little signs of de-escalating. Apart from this, Ukrainian attacks on Russian refineries continue to fuel concerns about supply disruptions from the key Oil producing countries. Furthermore, expectations of a peak summer fuel consumption and OPEC+ cuts in the third quarter could lead to a global oil market supply deficit, which, in turn, might hold back traders from placing aggressive bearish bets around the commodity.

Meanwhile, the incoming softer US economic data reaffirms market bets that the Federal Reserve (Fed) will start cutting interest rates in September and lower borrowing costs again in December. This led to the overnight slump in the US Treasury bond yields and dragged the US Dollar (USD) to a three-week low, which could further lend some support to Crude Oil prices. This further warrants caution before positioning for deeper losses ahead of the US Nonfarm Payrolls (NFP) report on Friday.

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.

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