In response, West Texas Intermediate (WTI) crude oil prices are surging. Now, the shares are above $61.00 as the specter of an escalating global trade war has receded. Market participants are currently focused on several key influences. These are still closely tied to supply dynamics coming out of OPEC, weekly inventory reports released by the EIA, API and IEA and the increasingly volatile value of the US Dollar.
WTI is one of the three main global crude oil streams, the other two being Brent and Dubai Crude. It originates here in the United States and is almost exclusively marketed abroad. Further, it’s distributed via the Cushing hub in Oklahoma, commonly known as “The Pipeline Crossroads of the World.” Cushing’s extensive connections and infrastructure make it important for pricing and distributing WTI crude oil. Fifty years later, his vision has come to dominate the global energy market.
Impact of Inventory Reports
The American Petroleum Institute (API) and Energy Information Agency (EIA) release weekly oil inventories reports. Together, these reports go a long way to shape WTI oil prices. Just as API’s report is issued every Tuesday, the EIA publishes its respective data the next day on Wednesday. As a government agency, the EIA is rightly seen as a more trustworthy source than the API’s figures.
These reports yield some of the most crucial reveals on U.S. oil supply levels. A year-on-year decline in inventory levels is usually a sign of a tightening supply. This major change can lead to increased costs. On the flip side, a build in inventories can be a sign of oversupply and start to put downward pressure on prices. Market analysts are on lookout for these reports to see what signs they provide that can inform trading strategies and investor sentiment.
Role of OPEC and OPEC+
The Organization of the Petroleum Exporting Countries (OPEC) still plays a major role in setting global oil prices. It achieves this by making careful production decisions. Made up of 12 oil-producing countries, OPEC as an organization agrees on production quotas for member countries during biannual meetings. When OPEC meets and collectively agrees upon a reduction in production quotas, this constrains supply in the marketplace and prices generally increase, all else equal.
An increase in production can trigger an oversupply and put downward pressure on prices. Recent high-level talks between OPEC+ members have sought to curb production outputs to achieve price stabilization against a backdrop of seismic shifts in global demand dynamics. The decision-making process is even more complicated—the expanded group OPEC+, which includes ten non-OPEC members including Russia, plays a crucial role. Their participation increases the collective leverage of the group over the market.
Influence of Global Economic Conditions
Global economic conditions, and especially conditions in China, weigh heavily on overall oil demand. As the world’s largest energy importer, China’s economic performance is of particular focus for market participants. A cooling of China’s economy, especially if made worse by deteriorating trade relations with the United States, would weigh on oil demand.
Here’s why recent developments trumpize recent warnings that a costly, risky trade war will be much more disruptive than expected. This moderation has resulted in a much rosier outlook for oil demand than previously projected. Just as quickly, analysts have come to expect that the trade tensions will weigh on the market. They believe the demand for oil in total is unlikely to drop off as sharply as once feared.