WTI edges higher above $64.50 amid supply concerns, potential US Fed rate cut

• WTI price extends its upside to near $64.60 in Tuesday’s early Asian session. 
• The ongoing conflict between Russia and Ukraine raises concerns over supply disruptions.
• Positive signals on US rate cuts contribute to the WTI’s upside. 

West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $64.60 during the early Asian trading hours on Tuesday. The WTI extends the rally due to a pause in negotiations for a peace deal between Russia and Ukraine. Traders await the American Petroleum Institute (API) weekly crude oil stock data, which is due later on Tuesday. 

The latest drone strikes by Ukraine on Russian energy facilities have heightened concerns about oil supply disruptions, boosting the WTI price. Russian officials said that Ukraine carried out a drone attack on Russia on Sunday, causing a significant fall in reactor capacity at one of the country's largest nuclear power facilities and a massive fire at the Ust-Luga fuel export terminal. US President Donald Trump reiterated threats of sanctions if progress on a Ukraine peace deal is not made within two weeks. 

Furthermore, signals of potential rate cuts from the US Federal Reserve (Fed) might weigh on the US Dollar (USD) and lift the USD-denominated commodity price, as it makes oil cheaper for holders of other currencies. Fed Chair Jerome Powell said on Friday at the Jackson Hole symposium that the US central bank is likely to cut interest rates as soon as its next policy meeting in September. 

Powell further stated that the US economy is facing a “challenging situation,” with inflation risks now tilted to the upside and employment risks to the downside. Market expectations for a September rate cut rose to nearly 84%, up from around 75% the previous week. 

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.