WTI drops below $64.00 on demand concerns

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WTI price declines to $63.95 in Friday’s early European session.
Anticipated lower US demand weighs on the WTI price.
The ongoing Russia-Ukraine conflict heightened concerns about supply disruptions.

West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $63.95 during the early European trading hours on Friday. The WTI loses ground amid expectations of lower demand in the United States (US). Meanwhile, oil traders await further developments surrounding the Russia-Ukraine peace talks.

Oil demand concerns might weigh on the black gold. The summer driving season in the US ends on Monday with the Labor Day vacation, indicating lower gasoline consumption in the coming months. Furthermore, producers are gradually bringing more barrels to the market as voluntary output cuts expire, raising expectations of increased supply.

"Concerns that U.S. fuel demand will ease as the driving season ends after the Labor Day holiday weighed on the market," said Hiroyuki Kikukawa, chief strategist of Nissan Securities Investment, a unit of Nissan Securities.

On the other hand, markets continue to weigh the uncertainty surrounding the stability and availability of Russian supply. Reuters reported that Russia launched missile and drone attacks on Ukraine on Thursday, resulting in the deaths of at least 21 people in Kyiv. Meanwhile, the Ukrainian military said it used drones to hit two Russian oil refineries overnight. The persistent Russia-Ukraine conflict has raised concerns that the US may respond with tighter sanctions. This, in turn, might lift the WTI price in the near term.

A larger-than-expected crude oil inventory decrease last week could underpin the WTI price. Data released by the US Energy Information Administration (EIA) on Wednesday showed that crude oil stockpiles in the US for the week ending August 22 fell 2.392 million barrels, compared to a decline of 6.014 million barrels in the previous week. The market consensus estimated that stocks would decrease by 2.0 million barrels.

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.