- Oil prices correct lower but remain buoyed by geopolitical risks.
- Fears of supply disruptions boosted prices 12% above late May's levels.
- Mixed data from China and ongoing concerns about global trade are weighing on prices on Monday.
Crude prices have pulled back from five-month highs right above the $75.00 level on Monday, but they remain 12% above the levels seen one month ago, boosted by investors’ concern about supply disruptions stemming from the Iran-Israel war.
The price of the West Texas Intermediate barrel jumped about 3% on early Monday trading to retest the $75.00 level, following news that Israel attacked two natural gas processing plants in Iran over the weekend.
Fears of a supply disruption are buoying Crude Oil prices
Market fears that the conflict in the Middle East might disrupt Oil supply have been pushing prices higher since Israel struck Tehran on Friday. The potential danger that the conflict could extend into an already volatile area and that Iran might block the Strait of Hormuz, the gateway for 20% of the world’s oil supplies, sent prices surging last week.
On the macroeconomic front, data from China has failed to provide any significant support to prices. Retail sales have increased beyond expectations, but the softer-than-expected industrial production has curbed optimism about the recovery of the world’s second-largest economy.
Beyond that, a news report released over the weekend suggested that the US-China trade deal might have left the rare earths trade issue unresolved. This has revived market concerns about global trade and, therefore, the outlook for global demand for crude.
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 12 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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