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28 Jan 2025
WTI holds position near $73.50, further upside seems limited amid a tepid demand outlook
- WTI could face challenges due to a bleak demand outlook following weak manufacturing data from China.
- US weather forecasts anticipate warmer-than-usual temperatures this week, likely lowering the demand for heating fuels.
- Potential Trump tariffs on steel, aluminum, and copper could have ripple effects on global commodity demand.
West Texas Intermediate (WTI) Oil price rebounds from the four-week low of $72.19 per barrel, recorded on January 28, currently trading around $73.50 during European hours on Tuesday. Despite this uptick, crude Oil prices remain constrained due to a bleak demand outlook following weak economic data from China.
China, the world's largest crude Oil importer, reported an unexpected contraction in January's manufacturing activity. The National Bureau of Statistics (NBS) Manufacturing PMI dropped to 49.1 in January, down from 50.1 in December, missing market expectations. This has raised concerns about global crude demand growth.
As per Reuters, IG analyst Yeap Jun Rong stated "The general tone of caution in the risk environment, coupled with weaker Chinese PMI numbers that cast further doubt on China's Oil demand outlook, may serve as a drag on Oil prices." Additionally, recent United States (US) sanctions on Russian Oil trade and the Shandong Port Group's ban on US-sanctioned tankers are expected to impact China's crude Oil demand.
US weather forecasts predict warmer-than-normal temperatures this week, reducing the demand for heating fuels. StoneX Oil analyst Alex Hodes mentioned on Monday, "Temperatures in both regions (US and Europe) are increasing, allowing for heating fuel demand to slide off some."
Traders are also keeping an eye on US President Donald Trump's broad set of tariffs, which includes potential tariffs on steel, aluminum, and copper. These tariffs could have significant ripple effects on global commodity demand.
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.