What Is West Texas Intermediate (WTI)?
West Texas Intermediate (WTI) is a light, sweet crude oil that serves as one of the main global oil benchmarks.
It is sourced from the United States, primarily from the Permian Basin. The oil comes mainly from Texas. It then travels through pipelines where it is refined in the Midwest and the Gulf of Mexico. The main delivery point for physical exchange and price settlement for WTI in Cushing, Oklahoma.
WTI is the underlying commodity of the New York Mercantile Exchange's (NYMEX) oil futures contract and is considered a high-quality oil that is easily refined.
Factors That Affect the WTI Oil
1.Supply and Demand
The Organization of Petroleum Exporting Countries (OPEC) has been the elephant on the world's trading floors, with its oil-producing member nations working together to determine prices by boosting or reducing crude oil production. While OPEC's grip on the market has loosened some in past years, its decisions continue to play a dominant role. OPEC's every move is watched closely by governments, oil companies, speculators, hedgers, investors, traders, policymakers, and consumers.
Non-OPEC oil producers are crude oil-producing nations outside of the OPEC group and shale oil producers. Interestingly, some of the top oil-producing countries are non-OPEC nations. This includes the United States of America, which is the number one producer, Canada, and China.
Strong economic growth and industrial production tend to boost the demand for oil—as reflected in changing demand patterns by non-OECD nations, which have grown rapidly in recent years.
2. Geopolitics
Since supply is determined by the big oil-producing countries, tension with one of those nations can cause major problems. So if there's war or conflict in an oil-producing region, crude inventories could seem threatened, and that could ultimately alter the price of oil.
"Geopolitics has traditionally been a factor in the oil price," Tamar Essner, senior energy director at Nasdaq IR Solutions, said.
"Particularly when situations in the Middle East or other oil-rich regions of the world would flare up, and there would be conflict, you would generally speaking see a little bit of an uptick in the price of oil as a result, just by virtue of the risk of supply being disrupted, or of means of transportation being disrupted, such as a canal or pipeline or workers going on protest, things like that."
Just think back to the Gulf War of 1991. Oil production fell, which caused prices to rise.
And in 2003, oil prices soared after the U.S. invaded Iraq. That Middle Eastern nation produces a lot of oil, and with instability in the region, people weren't immediately sure what would happen to the supply.
4. U.S. Dollar
Crude oil is quoted in U.S. dollars (USD). So, each uptick and downtick in the dollar or the commodity's price generates an immediate realignment between the greenback and numerous forex crosses. These movements are less correlated in nations without significant crude oil reserves, like Japan, and more correlated in nations that have significant reserves like Canada, Russia, and Brazil.
5. Inflation
Oil prices and levels of inflation are often seen as being connected in a cause-and-effect relationship. As oil prices move up, inflation—which is the measure of general price trends throughout the economy—follows in the same direction higher. On the other hand, as the price of oil falls, inflationary pressures start to ease.
Oil and inflation are linked because oil is a major input in the economy—it is used in critical activities such as fueling transportation and heating homes—and if input costs rise, so should the cost of end products. For example, if the price of oil rises, then it will cost more to make plastic, and a plastics company will then pass on some or all of this cost to the consumer, which raises prices and thus creates inflation.
6. Alternative Energy Sources
Alternative energy sources are substitutes for crude oil. These Crude Oil Substitutes include solar energy, oil sands, wind power, coal mine methane, geothermal energy, nuclear energy, LNG, hydrogen fuel cells, and natural gas.
The energy industry is sure to evolve, and experts are watching to see what role oil will play in the future. But for now, the oil markets remain a powerful force in the world of economics, geopolitics and your commuting budget.
Major Bank Says Oil is Going to $100
As the energy sector tracks for its best quarter on record with a year-to-date gain of nearly 40%, there's "clearly some upside" for oil prices as well, Piper Sandler's Craig Johnson told CNBC's "Trading Nation" on Friday.
U.S. West Texas Intermediate crude prices slid to around $64.75 a barrel by 17:00(GMT+8) on Tuesday.
"I could actually see a number that could be north of 100 in the next, say, six to ... 12 months from here," said Johnson, his firm's senior technical research analyst.
Johnson joins other financial professionals in their upbeat predictions for crude oil prices, largely driven by the $1.9-trillion economic stimulus package that Congress approved last week. That is widely expected to jumpstart the U.S. economy, boosting oil demand.
Global demand recovery is also a factor in these bullish oil price forecasts even if this recovery has been uneven, strongest in Asia and most notably China but slow to return to pre-pandemic levels in other key markets.
Not all forecasters are so bullish, however. A recent Reuters poll revealed a consensus price projection of $59.07 a barrel for Brent crude. Individual forecasts vary from $50-70 over the next five years, according to Bank of America, to $67 a barrel this year, according to Barclays, and $75 by the third quarter, according to Goldman Sachs.
Trading strategy (Source: Trading Central)
Crude Oil (WTI) (J1) MT: further upside.
Pivot: 55.90
Our preference: long positions above 55.90 with targets at 72.30 & 77.60 in extension.
Alternative scenario: below 55.90 look for further downside with 51.30 & 44.80 as targets.
Comment: the RSI shows upside momentum.
Supports and resistances:
82.90 **
77.60 ***
72.30 ***
65.84 Last
55.90 ***
51.30 **
44.80 **
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