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10 Jan 2025

WTI rises to near $74.00 due to increased likelihood of higher heating fuel demand

  • WTI price appreciates on expectations of increased heating fuel demand driven by prolonged cold weather across the Northern Hemisphere.
  • JP Morgan attributes the increase in Oil prices to growing concerns over supply disruptions driven by multiple factors.
  • Oil prices rise amid rising concerns over supply disruptions, driven by Biden’s plan to announce sanctions targeting Russia's Oil revenues.

West Texas Intermediate (WTI) Oil price extends gains for the second successive session, trading around $73.90 per barrel during the European hours on Friday. Crude Oil prices are bolstered by expectations of higher heating fuel demand due to extended cold weather across the Northern Hemisphere.

The United States (US) Weather Bureau predicts below-average temperatures in central and eastern regions of the country. Similarly, much of Europe has been gripped by severe cold and is likely to face an unusually chilly start to the year.

According to Reuters, analysts at JP Morgan credit the Oil prices increase to mounting concerns over supply disruptions caused by tighter sanctions, combined with low oil inventories and freezing conditions across parts of the US and Europe.

Oil prices also climb due to heightened concerns over supply disruptions fueled by ongoing geopolitical tensions. US President Joe Biden is expected to announce new sanctions this week targeting Russia's Oil revenues, aiming to strengthen Ukraine's resistance against Moscow ahead of President-elect Donald Trump taking office on January 20.

On Friday, ING analysts mentioned in a note "Uncertainty surrounding how aggressive Trump will be toward Iran is offering additional support to crude oil prices,". They also highlighted that Asian buyers are already seeking alternative grades from the Middle East, as broader sanctions on Russia and Iran complicate Oil trade flows.

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.

 

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