The price of West Texas Intermediate (WTI) Crude Oil fell to $58.50, due to the resumption of production in Iraq. The restoration at Iraq’s West Qurna 2 field, which produces over 460,000 barrels per day, has increased supply and pressured prices.
Geopolitical developments continue to limit the decline in WTI prices. The absence of a resolution in the Ukraine-Russia conflict maintains a risk premium on oil due to restrictions on Russian exports.
Asian Import Dynamics
Asian import dynamics are reshaping global flows, with China increasing purchases from Saudi Arabia and Iran. Meanwhile, US sanctions and softer demand have led to a decrease in imports from Russia.
Market attention is focused on the expected 25-basis-point rate cut by the Federal Reserve, with hopes that lower rates could support energy demand by weakening the US Dollar.
Traders are also looking to the American Petroleum Institute’s weekly report for insights into US stock levels. A larger-than-expected inventory build could add further pressure to WTI prices despite the geopolitical tension.
The WTI is a high-quality American crude oil, and its price is driven by supply, demand, political factors, and the US Dollar’s value. Inventory reports by API and the Energy Information Agency (EIA) significantly impact price, with EIA data being deemed more reliable.
Short Term Supply Story
We see immediate downward pressure on WTI, with prices testing the $58.50 mark due to resumed Iraqi production. However, this appears to be a short-term supply story, overshadowed by the highly anticipated Federal Reserve decision tomorrow. Markets are pricing in a greater than 90% chance of a 25-basis-point cut, which could weaken the dollar and boost demand.
Beyond the noise from Iraq, the broader supply landscape remains tight, providing a floor under prices. Lingering geopolitical tensions related to the stalled Ukrainian peace process are keeping a risk premium in the market. More importantly, we must remember that the extended OPEC+ voluntary production cuts, totaling over 2 million barrels per day, are still in effect and will be a dominant factor into the new year.
The American Petroleum Institute (API) inventory report due later today will be a key short-term catalyst, and we are watching for a potential surprise. Last week’s data from the EIA showed a surprise build of 3.6 million barrels, and another build could push WTI below $58 temporarily. This expected volatility suggests options strategies, such as straddles, could be effective for traders looking to profit from price swings in either direction following the data and Fed announcement.
The Fed’s expected pivot to a more accommodative policy is the most significant bullish factor on the horizon. Looking back at the last rate-cutting cycle that began in 2019, a weaker dollar provided sustained tailwinds for commodity prices. A rate cut tomorrow would likely reinforce this trend, making USD-denominated oil more attractive and potentially drawing investment back into the energy sector.
