Oil prices fell sharply through the day on Thursday. They reversed from the $72.00 level, showing a major downward move. The price of WTI, the most important long-term benchmark in the global oil market, is trading today at about $69.65. That represents a decrease of more than a full percent for the day. The answer is that WTI prices go up and down for a lot of different reasons. Major drivers are the strength of the US Dollar and the most recent oil inventories relief.
That last statement requires clarification, as the Cushing hub in Oklahoma is currently the most significant distribution point for WTI crude oil. It’s sometimes described as “The Pipeline Crossroads of the World.” This moniker stems from its strategic position and extensive infrastructure that make moving oil across North America a breeze. US Dollar Value– The value of the US Dollar is a key factor that affects WTI prices. For the record, WTI oil is traded almost exclusively in US Dollars. When the dollar’s value increases, this acts to depress WTI oil prices in international markets and the reverse holds when the currency’s strength fluctuates.
Factors Influencing WTI Prices
A number of factors affect the price of WTI crude oil on the global market. Another contributing factor is the strength of the US Dollar. When the dollar weakens, it generally makes WTI oil cheaper for foreign buyers, having a positive effect on demand. On the one hand, a stronger dollar can make WTI oil more costly, suppressing demand.
After noon on Thursday WTI prices were under intense selling pressure throughout the Asian trading session. This retracement continues from the prior day’s reversal from higher price levels, showing the continuation of a bearish trend. Traders and analysts watch these fluctuations like hawks, as they can indicate other trends in the market and investor confidence.
WTI crude oil is one of the three global crude oil benchmarks used around the world. The other two are Brent and Dubai Crude. Like all markets, each type has its own unique pricing dynamics driven by regional supply and demand factors. WTI is mostly US origin. If domestic production matters a lot, then its price can fluctuate wildly based on how much we’re making and how quickly we’re consuming it.
Impact of Inventory Reports
Traders closely watch the weekly oil inventory reports from American Petroleum Institute (API) and the Energy Information Administration (EIA). Together, these four reports are one of the Oil Market’s most important indicators. Market participants generally do not trust the API data, but largely do trust the EIA data. That reliability is what makes EIA such an important reference point in the market.
Last Wednesday, the EIA’s weekly report caught the market off guard with a 6.2 million barrel increase in US crude inventories last week. This large increase in supply helped put downward pressure on WTI prices. Market analysts noted that such high inventory levels could be an indication of softer demand or oversupply. This reality potentially opens the door to a lot more selling of WTI futures.
API reports often include advance estimates that are subject to wide discrepancies with EIA numbers. This difference can sometimes introduce the risk of unintended price volatility when these differences are not aligned. Traders continue to closely watch these reports because they offer a window into the market’s shifting supply and demand dynamics.
Current Market Outlook
As of this writing, WTI futures prices are still around the $69.65 level. Market observers are quite keen to see how new external variables such as currency strength and inventories levels will impact future pricing trends. The recent downturn is partly a result of larger economic concerns, as well as uncertainty in global oil markets.
Into this mix, investors are especially interested in key economic releases that might impact the US Dollar’s value. Weaker dollar could offer some offsetting support to WTI prices, though persistence of dollar strength would reinforce existing bearish headwinds. Moreover, constantly evolving geopolitical dynamics and OPEC+ production decisions will heavily influence market expectations.