WTI declines below $56.50 on potential Russia-Ukraine peace deal

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WTI price extends the decline to near $56.35 in Tuesday’s Asian session.
An agreement to end the war in Ukraine would materially reduce the risk of supply disruptions in the future.
The risk of US military action in Venezuela might help limit the WTI’s losses.

West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $56.35 during the Asian trading hours on Tuesday. The WTI price remains under selling pressure amid renewed signs of optimism surrounding a deal to end the war in Ukraine. Traders brace for the release of the American Petroleum Institute (API) crude oil stockpiles report later on Tuesday.

US officials said on Monday that an agreement with Ukrainian President Volodymyr Zelenskyy to end its war with Russia was nearly complete, although territorial disputes remain unresolved and a strong security guarantee from the US and European countries remains a sticking point. A possible peace deal could eventually lift restrictions and increase Russian oil supply, which could drag the WTI price lower.

On the other hand, the downside for the black gold might be limited amid the risk of US military action in Venezuela after the US President Donald Trump administration detained a supertanker last week. Reuters reported that Venezuela's oil shipments have fallen substantially since the US seized a tanker last week and imposed fresh sanctions on shipping companies and vessels doing business with Venezuela.

“The grind lower in oil prices and the achieving of month-to-date lows across the major futures complex last week might have seen more negative pricing if it were not for the upping of the ante by the United States with regard to Venezuela,” said John Evans, an analyst with PVM.

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.