WTI extends winning streak on US-China trade truce
- WTI jumps to near $62.00 as the US and China agreed to a 90-day pause in the tariff war.
- Traders pare Fed dovish bets for the July meeting after the US-China trade truce.
- Ukraine Zelenskyy insisted on meeting with Russian President Putin in Turkey this week.
West Texas Intermediate (WTI), futures on NYMEX, extends its winning streak for the fourth trading session on Tuesday. The Oil price climbs to near $62.00 as the 90-day agreement between the United States (US) and China to reduce tariffs substantially by 115% has boosted its demand outlook.
On Monday, the US and China agreed to lower import duties to 10% and 30%, respectively, aiming to avert the trade war that led market experts to downgrade the global economic outlook. Signs of improving US-China trade relations have strengthened the Oil price, given that Beijing is the largest importer of energy in the world.
Meanwhile, the temporary truce between the US and China has diminished market expectations of interest rate cuts by the Federal Reserve (Fed) in the July meeting. Such a scenario could limit the upside in the Oil price. On Monday, Fed officials cheered the US-China deal and stated that the impact of tariffs will be lower than what they had anticipated earlier, but didn’t rule out fears of an increase in inflation.
According to the CME FedWatch tool, the probability for the Fed to cut interest rates in the July meeting has dropped to 38.6% from 78% recorded a week ago.
The next trigger for the Oil price will be a meeting between Russian leader Vladimir Putin and Ukrainian President Volodymyr Zelenskyy, if Putin agrees to it. Zelenskyy has insisted on meeting with Putin in Turkey on Thursday to discuss the war in Ukraine. Positive outcomes from the war talks would be favorable for the Oil price.
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.