The International Energy Agency (IEA) says that the global oil supply will rise by 2.7 million barrels per day by 2025. This change follows OPEC+’s decision to increase production, which is higher than the previous estimate of 2.5 million barrels per day. Additionally, the IEA has raised its forecast for global oil demand growth in 2025 to 740,000 barrels per day, up from 680,000 barrels per day. However, the demand growth forecast for 2026 remains steady at 700,000 barrels per day. Several factors are influencing the oil market. There are concerns about possible supply disruptions from new sanctions on countries like Russia and Iran. At the same time, OPEC+’s increased supply and the risk of an oversupply are also factors to consider. Current projections indicate a big supply surplus may build up by 2026, as global oil supply growth is expected to exceed demand growth by nearly 2 million barrels per day. With WTI crude futures for October delivery around $75, this imbalance suggests that prices could fall. This idea is supported by a recent report from the Energy Information Administration, which noted a surprising increase in U.S. crude inventories of 2.8 million barrels last week. These developments suggest it may be wise to consider bearish strategies, like selling call spreads or buying puts on front-month contracts, to take advantage of possible price declines or stagnation. In late 2023, similar weakening demand forecasts caused crude prices to drop nearly 20% in just one quarter. This historical example indicates that markets can react sharply when there is a supply surplus. However, taking outright short positions can be risky due to the chance of sudden supply disruptions from new sanctions against Russia and Iran. The ongoing conflict in Ukraine also threatens energy infrastructure, which could tighten the market unexpectedly. A more cautious approach might involve strategies that benefit from increased price volatility, such as a long straddle. Today, September 11th, reminds us how geopolitical events can quickly change market dynamics, often outweighing fundamental data. The potential for tightened supply due to sanctions remains a key factor that could lead to sharp and unpredictable price increases. Therefore, any bearish strategy should include safeguards against these sudden risks.

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