Amid bets on steeper Fed tightening, WTI Oil pares gains and slips below $87

After failing to move beyond $88.20, WTI oil slips below $87.00 on Friday.
Oil prices face pressure as markets anticipate that faster Fed tightening will curb US consumption.
Supply concerns ease as US oil inventory figures show unexpected stock increases in the week of November 6.

Oil prices are under moderate selling pressure on Friday, with expectations of weaker US consumption due to more aggressive Federal Reserve (Fed) monetary tightening outweighing concerns over the stalled Middle East conflict. Having rebounded more than 3% on Thursday, US benchmark West Texas Intermediate (WTI) oil is down 1.2% on the day, touching session lows below $87.00.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

A possible half-point rate hike in December and faster monetary tightening over the coming months are now the subject of speculation following this week’s US Consumer Price Index (CPI) release. Comments from key Fed officials have reinforced that view. Such a policy path would restrain US economic growth and would most likely put pressure on oil consumption.

Why Have US Oil Inventories Risen Against Expectations?

Adding to the pressure, figures from the US Energy Information Administration (EIA) showed a 4,657 million barrel increase in crude oil inventories for the week ending 6 November. Markets had anticipated a 1.1 million barrel decline, following a 0.8 million barrel fall in the preceding week.

A previous American Petroleum Institute (AIP) report had shown a similar result. Together, the figures have helped allay fears of an oil shortage, at least for the time being.

Further losses in crude oil prices are, however, being limited by developments in the Middle East. Efforts to restart negotiations between Washington and Tehran appear to have stalled. US President Trump dashed the remaining hopes of a breakthrough when he stated that “we don’t need a deal with Iran.”

Although Trump also asserted that the US controls the Strait of Hormuz, attacks on vessels trying to navigate the waterway have increased in recent weeks, raising serious questions about the credibility of his claim. Before the war, the strait carried about 20% of global supply.

WTI Oil: Frequently Asked Questions

What distinguishes WTI oil?

Among the crude oil varieties traded internationally, WTI, short for West Texas Intermediate, is one of three major types alongside Brent and Dubai Crude. Its relatively low gravity earns it the description “light”, while its low sulphur content accounts for the term “sweet”. Regarded as a high-quality oil that can be refined easily, WTI originates in the United States and is distributed through the Cushing hub, known as “The Pipeline Crossroads of the World”. WTI serves as an oil market benchmark, with its price regularly cited in media reports.

What determines WTI oil prices?

Supply and demand underpin WTI oil pricing, as they do for all assets. Stronger global growth can lift demand, while weaker growth can have the reverse effect. Supply disruptions arising from political instability, wars or sanctions can also influence prices. Another important factor is the production decisions of OPEC, a grouping of major oil-producing countries. Since crude oil is traded mainly in US Dollars, the value of the US Dollar also affects WTI prices: a weaker dollar can make oil more affordable, while a stronger dollar can do the opposite.

Why do inventory figures affect WTI oil prices?

WTI oil prices respond to the weekly inventory releases from the American Petroleum Institute (API) and the Energy Information Agency (EIA), as stock movements reflect shifts in supply and demand. A fall in inventories may signal stronger demand and lift oil prices; an increase may point to greater supply and weigh on prices. Each Tuesday brings the API report, followed by the EIA release the next day. The two sets of figures are generally similar, differing by no more than 1% on 75% of occasions. As the EIA is a government agency, its figures are regarded as more reliable.

How do OPEC decisions affect WTI oil prices?

Production quotas agreed by OPEC (Organization of the Petroleum Exporting Countries) often influence WTI oil prices. The group comprises 12 oil-producing nations, which meet twice a year to collectively set quotas for member countries. Lower quotas can restrict supply and lift oil prices, whereas an increase in production has the reverse effect. The broader OPEC+ grouping brings in ten additional non-OPEC members, with Russia the most notable among them.