Oil – Crude (WTI)
The West Texas Intermediate Crude Oil (WTI) is one of the two global benchmark prices. When traders refer to WTI as a benchmark, it essentially means a reference point for the buy and sell price of the oil. The WTI oil is known for its lower concentration levels of sulphur and is produced and refined in North America. However, this is not the most used oil due to the high transportation costs attached to it.
Factors influencing the price of WTI Oil
There are many factors that could alter the supply and demand levels of oil, which in turn impacts the price of WTI crude oil. This includes:
- Demand: When the global economy steadily increases there is more demand for oil. However, it is important to remember that markets are always looking towards the future, therefore, the price of oil will reflect the expected growth of the economy. The growth of the economy boils down to consumer confidence, inflation levels, interest rates, and political and economic events.
- Supply: The Organisation of Petroleum Exporting Countries (OPEC) has always had very tight control over the production and supply of oil. More recently, this grip has been seen to have loosened but that is not to say that governments, businesses, speculators, consumers and traders around the world still keep a close eye on OPEC's every move. OPEC's supply policy can be majorly influenced by political tensions and events occurring between countries; this will inevitably then cause the price to shift.
- Other notable factors which will affect the price of oil include the strength of the USD and the production and usage of energy derived from renewable sources, such as wind and solar power. Another factor to consider is that most people want to actually trade the WTI oil in order to get the best exposure possible to the oil price. Therefore, the dynamics occurring in the futures market will also affect the price of the WTI benchmark.
Advantages and disadvantages of trading WTI
Reading the WTI Oil price chart
The WTI Oil price reached a low of $26.03 in February 2016. This was due to an out of control oversupply because of non-stop shale productions and rising demands from OPEC for more output. This caused the price of oil to plunge and created volatility in the market, analysts predicted that the price would continue to crash but in February the price did bottom out as shale producers promised a no-growth period. OPEC also made a bid to help the plummeting price by working with both OPEC members and non-members such as Russia to try and freeze production.
When the oil price falls below $40 for a WTI barrel, speculation grows that many marginal producers will stop producing. This leads to hoarding of oil, and prices soon rise – We saw this in the example above. Global economic growth has also been stronger than expected between 2015 and 2018, which has led to speculation of increasing demand. In early 2017 prices began to fall do to concern that oil inventories were very high, and there was no more storage capacity. However, in April 2017, OPEC announced they would extend production cuts for another nine months – this caused the uptrend to resume.
How can I trade WTI online?
If you are interested in trading oil then it is worth following the current price action and news around WTI Oil. You will find it interesting to see how the two work hand in hand to influence the price of WTI Oil. Opening a live or demo account with Eightcap will provide you with access to live price charts so you can follow the action closely. We also offer CFDs on WTI Oil, so you can take long and short positions through the use of leverage.