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Haresh Menghani
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18 Mar @ 08:55 (GMT+0)

WTI advances to two-week high, above $68.00 amid Middle East tensions and China optimism

  • WTI draws some support from rising geopolitical tensions in the Middle East. 
  • The optimism over China’s stimulus measures further benefits the black liquid.
  • Concerns about a slowdown in the global economy might cap the commodity.

West Texas Intermediate (WTI) US Crude Oil prices attract buyers for the third straight day on Tuesday and touch a fresh two-week high during the first half of the European session. The commodity currently trades just above the $68.00 mark, up over 1.25% for the day, and seems poised to climb further amid rising Middle East tensions.

US President Donald Trump vowed to continue the assault on Yemen’s Houthis unless they end their attacks on ships in the Red Sea and warned that he would hold Iran responsible for any attacks carried out by the militant group. Adding to this, Israeli air strikes in Gaza ended a weeks-long standoff over extending a ceasefire. This raises the risk of a further escalation of the conflict in the region, which could impact supply, and act as a tailwind for Crude Oil prices. 

Furthermore, the latest optimism over China stimulus measures announced over the weekend turns out to be another factor that lends support to the black liquid. In fact, China’s State Council unveiled a special action plan on Sunday aimed at stimulating domestic consumption and introduced measures to increase household incomes. Adding to this, China’s Shenzhen eased its housing provident fund loan policies to stimulate the property market and clear the overhang. 

This is expected to boost fuel demand in the world's biggest crude importer and supports prospects for further appreciation for Crude Oil prices. That said, the Organization for Economic Co-operation and Development (OECD) lowered its global growth outlook amid worries about Trump's tariffs. This could weigh on global energy demand and hold back traders from placing aggressive bullish bets around the commodity ahead of this week's key central bank event risk.

The Federal Reserve (Fed) is scheduled to announce its decision at the end of a two-day policy meeting on Wednesday. Investors will look for cues about the central bank's rate-cut path, which will play a key role in influencing the near-term US Dollar (USD) price dynamics and provide a fresh impetus to the USD-denominated commodities, including Crude Oil prices. Nevertheless, rising geopolitical risks favor bullish traders and should continue to support the black liquid.

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.