WTI slides below $78.00 mark, rising Middle East tensions to limit deeper losses

• WTI moves away from a three-week high touched, though the bias seems tilted in favor of bulls.

• Geopolitical tensions in the Middle East could tighten access to global supplies and lend support.

• Dovish Fed expectations continue to undermine the USD and should contribute to limiting losses.

West Texas Intermediate (WTI) US crude Oil prices tick lower during the Asian session on Tuesday and for now, seem to have snapped a four-day winning streak to a three-week top, around the $78.75-$78.80 area touched the previous day. The commodity currently trades just below the $78.00 mark, down nearly 0.50% for the day, though any meaningful downside seems elusive in the wake of rising Middle East tensions.

Israeli forces continued their operations near the southern Gaza city of Khan Younis on Monday and are preparing for some sort of retaliatory attacks by Iran, and its allies, amid the risk of a broader conflict in the Middle East. Moreover, the subsequent Israeli response could lead to a full-blown war in the key Oil producing region and disrupt global crude supplies. This, in turn, should continue to act as a tailwind for the black liquid and help limit losses.

Furthermore, market players seem convinced that the Federal Reserve (Fed) will start its rate-cutting cycle in September, which is expected to lift economic activity and boost fuel demand. Apart from this, subdued US Dollar (USD) price action might turn out to be another factor lending support to the USD-denominated commodity. The USD bears, however, seem reluctant ahead of the release of the crucial US inflation figures on Tuesday and Wednesday. 

In the meantime, Tuesday's downtick could be attributed to some technical selling following the overnight failure near the 50-day Simple Moving Average (SMA) resistance. Nevertheless, the aforementioned supportive fundamental backdrop supports prospects for an extension of the recent goodish recovery move from the $71.20-$71.15 region, or a multi-month low touched last week. Hence, any meaningful dip might still be seen as a buying opportunity.

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 13 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.