WTI seems vulnerable below mid-$56.00s as Trump’s Venezuela oil plan fuels supply hopes

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WTI remains under heavy selling pressure for the second consecutive day on Wednesday.
Trump said that Venezuela will send oil to the US, fueling hopes of adequate global supplies.
A softer USD supports the commodity ahead of the US data and the US inventory report.

West Texas Intermediate (WTI) US Crude Oil prices extend the previous day's sharp pullback from the $58.65-$58.70 region, or over a one-week high, and attract heavy selling for the second straight day on Wednesday. The commodity drops to the lowest level since December 19, around the $55.70-$55.65 area, during the Asian session, and seems vulnerable to slide further.

US President Donald Trump said on Tuesday that Venezuela will be turning over 30 million to 50 million barrels of high-quality, sanctioned oil to the US. Moreover, Delcy Rogriguez, who was sworn in as interim President, signaled that she will cooperate with Washington. This, in turn, reinforced market expectations that the US control of Venezuela’s oil was likely to increase global supplies, which, along with worries about weakening fuel demand, turned out to be key factors weighing on the black liquid.

The negative factor overshadows concerns about supply disruptions led by heightened political tensions between Saudi Arabia and the UAE over a conflict in Yemen. Even a surprise draw in US weekly crude supplies fails to impress bulls or lend any support to Oil prices. According to the American Petroleum Institute (API), US crude inventories declined by about 2.8M barrels during the week ended January 2. The official government inventory report is due to be released later this Wednesday.

Traders will further take cues from important US macro data – the ADP report on private-sector employment, the ISM Services PMI, and JOLTS Job Openings – for some impetus later during the North American session. In the meantime, dovish Federal Reserve (Fed) expectations fail to assist the US Dollar (USD) in capitalizing on the previous day's positive move. A softer buck tends to underpin demand for USD-denominated commodities and could help limit further losses for Crude Oil prices.

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.