The global oil market is experiencing fluctuations as West Texas Intermediate (WTI) oil prices hover around a near two-month low. The volatility stems from the latest weekly oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA), coupled with geopolitical developments and decisions from major oil-producing nations. With oil being a significant commodity traded internationally, these factors contribute to the current pricing dynamics and future market expectations.
The American Petroleum Institute and the Energy Information Agency release weekly oil inventory reports that significantly impact WTI oil prices. The EIA, a government agency, is often considered more reliable, although the results of both organizations' reports are similar 75% of the time, often falling within a 1% variance. These reports provide insights into the supply levels of crude oil, influencing market sentiments and price movements.
WTI oil, one of three major types of crude oil alongside Brent and Dubai Crude, is sold on international markets. Prices are closely watched as they reflect the balance of supply and demand. The Organization of the Petroleum Exporting Countries (OPEC), a consortium of 12 major oil-producing nations, plays a crucial role in determining production quotas for its members during twice-yearly meetings. These quotas directly affect global supply levels and, consequently, oil prices.
Recently, OPEC's decision to lower quotas has raised concerns about supply constraints, potentially pushing oil prices higher. Additionally, OPEC+, an expanded group that includes ten non-OPEC members such as Russia, further influences market dynamics. This coalition's decisions on production levels can drive substantial changes in global oil availability.
Geopolitical factors also weigh heavily on oil prices. The potential for a peace deal between Russia and Ukraine has introduced uncertainty into the market. A resolution to this conflict could lead to the easing of Russian sanctions, resulting in an increased global oil supply. This prospect has contributed to the downward pressure on prices.
Former President Donald Trump has expressed intentions to expedite the end of the conflict with Russia, adding another layer of complexity to the situation. Should a peace agreement be reached, it could significantly alter the landscape of global oil markets by increasing Russian exports.
Meanwhile, the strength of the US Dollar plays a pivotal role in determining WTI crude oil prices. Since oil is predominantly traded in US Dollars, fluctuations in the currency's value directly impact oil costs. Recently, the US Dollar's rebound has countered the Japanese Yen's strength following Bank of Japan rate hike expectations, allowing for a market recovery ahead of key US economic data releases.
Compounding these dynamics is the closure of the WTI oil pipeline since March 2023. This shutdown resulted from an International Chamber of Commerce (ICC) ruling ordering Turkey to pay Baghdad $1.5 billion in damages for unauthorized exports between 2014 and 2018. The pipeline's closure has further tightened supply, contributing to price pressures.