WTI edges lower below $63.50 on US economic slowdown fears

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WTI price trades in negative territory near $63.20 in Friday’s early Asian session.
Concerns about a slowdown in the US economy weigh on the WTI price.
The Fed cut the interest rates and signaled further reductions this year.

West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $63.20 during the early Asian trading hours on Friday. The WTI drifts lower amid concerns over the health of the US economy. Nonetheless, a large draw in the US crude inventories and an interest rate cut by the Federal Reserve (Fed) might cap the downside for the WTI.

Persistent oversupply risks and soft fuel demand in the US, the world’s biggest oil consumer, undermine the black gold. Data from the Energy Information Administration (EIA) showed on Wednesday that US crude oil stockpiles fell sharply last week as net imports dropped to a record low while exports jumped to a near two-year high.

However, a rise in distillate stockpiles, which increased by 4 million barrels versus predictions of a 1 million barrel increase, raised worries about demand in the world's top oil consumer and dragged the WTI price lower.

The Fed cut the Federal Funds Rate by 25 basis points (bps) at the end of a two-day monetary policy meeting on Wednesday, lowering borrowing costs to the 4.00% to 4.25% range. The US central bank penciled in two more reductions this year. Lower interest rates generally support oil demand, and the Fed’s guidance suggests it now views risks from rising unemployment as outweighing those from persistent inflation.

WTI Oil FAQs

What is WTI Oil?

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.

What factors drive the price of WTI Oil?

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.

How does inventory data impact the price of WTI Oil

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.

How does OPEC influence the price of WTI Oil?

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.