- Oil prices gave away gains as a US court reinstated Trump’s tariffs
- Investors remain wary that OPEC+ countries might hike output after Saturday’s meeting.
- The uncertain global growth scenario is undermining Oil demand expectations.
WTI Oil prices reversed gains on Thursday, after the US Court of Appeals reversed a sentence from a lower court to block Trump’s trade tariffs. The decision brought trade uncertainty back to the table, casting doubts about global demand for Oil.
The US administration maintains contacts with trade partners to cut “beautiful deals,” but with no substantial progress so far. The negotiations with Japan are drawing out long, and talks with China seem to have stalled. The lack of good news is adding pressure on Crude prices.
Oversupply concerns keep upside attempts limited
Beyond that, OPEC+ countries are expected to meet on May 31 and will probably agree to increase supply by 411,000 barrels per day from July. In the context of restricted trade and a highly likely slowdown in global growth, markets are fearing an oil glut.
Macroeconomic data from the US and the Eurozone support that view. US GDP contracted in the first quarter by 0.2%, with consumer spending declining. Businesses and consumers seem to be delaying their purchasing decisions, wary of Trump’s erratic trade policies.
In Germany, unemployment figures revealed higher-than-expected layoffs in April, and retail sales declined unexpectedly, revealing the soft momentum of the Eurozone’s major economy.
On the positive side, the US Energy Information Administration reported that crude stocks fell last week by 2.8 million barrels, against expectations of a 1 million increase, which provided some support to prices.
WTI Oil FAQs
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.
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.
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.
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.
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