This week, crude oil inventories dropped by 6.014 million barrels, much more than the expected decrease of 1.759 million barrels. Gasoline inventories fell by 2.720 million barrels, while distillate inventories increased by 2.343 million barrels, exceeding the expected rise of 0.928 million barrels. In Cushing, inventories rose by 0.419 million barrels compared to the previous increase of 0.045 million barrels. Crude oil is currently trading at $62.50, rising by $0.73 today, with prices ranging from a high of $62.80 to a low of $61.83.

Market Reaction to Inventory Changes

The market is responding strongly to the unexpected crude inventory drop, which was more than three times what analysts predicted. This positive sign is bolstered by the decline in gasoline stocks, indicating strong consumer demand as summer ends. This demand may partly result from temporary production halts in the Gulf of Mexico due to Tropical Storm Valerie last week. However, traders should be careful. The large increase in distillates suggests some weakness in the industrial and freight sectors. This aligns with recent data, like China’s July 2025 Caixin Manufacturing PMI, which dropped to 49.5, indicating less factory activity. Additionally, the slight rise in Cushing inventories may pressure front-month futures prices. Given these mixed signals, we expect implied volatility in options to stay high in the coming weeks. Traders might want to consider options spreads, like bull call spreads, to express a cautiously positive outlook while managing risk. This strategy can help capture potential gains from tight supply while protecting against a drop in demand.

Outlook for September and October

As we look to September and October, we must consider the seasonal trend of declining demand after the summer driving season. Historically, as seen in fall 2023, prices can drop nearly 20% between September and November due to macroeconomic concerns. Uncertainty about the Federal Reserve’s next steps, following their rate hike in July 2025, is also likely to impact market sentiment. Create your live VT Markets account and start trading now.

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