WTI recovers early losses, acceleration in Oil output is still a concern
- The outlook for the Oil price remains grim as the OPEC+ has announced that it will speed up the unwinding of 2.2 million bpd output cuts made since September 2022.
- The OPEC+ has announced that it will increase oil production by 960,000 bpd from June.
- US-China trade tensions have dampened the Oil demand outlook.
West Texas Intermediate (WTI), futures on NYMEX, recoups a substantial share of initial losses and rebounds from the intraday low of $55.14 to near $57.30 during European trading hours on Monday. The Oil price is still down almost 1.5% from Friday’s closing price and is expected to remain on the backfoot as the OPEC+ has decided to speed up their objective to phase out production cuts of 2.2 million barrels per day (bpd) announced since September 2022.
The oil cartel decided to unwind oil production cuts gradually by increasing output at a pace of 138,000 bpd each month from April and will reach the 2.2 million bpd mark by September 2026. However, the cartel has accelerated its pace almost three times to 411,000 bpd in May and will increase it to 960,000 in June, Reuters reported. Technically, the Oil price underperforms in an oil-flooded market.
Additionally, elevated uncertainty on the demand outlook in the face of tariffs announced by United States (US) President Donald Trump on the second day of April has also sparked Oil demand concerns.
US President Trump has indicated that he could announce bilateral deals this week, but the trade war with China is expected to last longer, while responding to reporters over the weekend. While increasing hopes of bilateral trade deals by Washington indicate that fears of tariffs proposed by US President Trump have peaked now, the stand-off between the world’s two largest powerhouses will continue to keep investors on their toes.
Market experts have revised their Gross Domestic Product (GDP) forecasts for China in the wake of a trade war with China. Given that China is the largest Oil importer in the world, an economic slowdown in the Asian giant dampens the Oil’s demand outlook.
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.