WTI oil prices rose to about $57.65 in early European trading on Monday, up 1.12% for the day. The US intercepted an oil tanker off Venezuela, leading to supply uncertainties that affected prices. Traders are eagerly awaiting the American Petroleum Institute’s report on crude oil stockpiles, which will be released on Tuesday. Ongoing US actions against Venezuela’s oil trade, including the pursuit of another tanker, could further influence WTI prices.

Impact of Federal Reserve Actions

The possibility of more interest rate cuts from the Federal Reserve, following softer US inflation data, may affect the strength of the US Dollar and in turn influence WTI prices. The CME FedWatch tool shows a 21% chance of a rate cut in January. WTI oil, which comes from the US, is considered light and sweet, meaning it’s high-quality and easy to refine. Its price is affected by global demand, geopolitical happenings, and OPEC’s production decisions. The balance of supply and demand also plays a crucial role in its pricing. Reports on inventory from the American Petroleum Institute and Energy Information Agency can lead to changes in WTI prices by indicating shifts in supply and demand. OPEC’s production quotas significantly impact prices as well. Currently, we see rising tensions in the Caribbean pushing WTI crude towards $85 a barrel as of late December 2025. The situation is reminiscent of tanker interceptions during the Trump administration, which caused sudden supply fears and price spikes. Traders should stay alert for potential short-term gains, making call options a smart strategy in the upcoming weeks leading into January 2026.

US Federal Reserve Policy Expectations

This positive outlook is supported by changing expectations for US Federal Reserve policy. The CME FedWatch Tool now indicates nearly a 40% chance of a rate cut in the first quarter of 2026, a big shift from a few months ago. If a rate cut occurs, it could weaken the US dollar, making crude oil cheaper for foreign buyers and possibly increasing demand. Recent data shows a tighter market, which traders need to keep an eye on. The latest report from the Energy Information Administration (EIA) revealed an unexpected inventory drop of 2.5 million barrels, contrary to expectations of a small increase. This indicates strong underlying demand as winter approaches, helping to support current prices. With these trends, we predict increased volatility as the new year begins. The CBOE Crude Oil Volatility Index (OVX) has already increased to above 35, compared to an average of 28 in the previous quarter. We expect this to rise further as new developments arise from Venezuela. This environment is favorable for strategies like buying call spreads that can benefit from sharp price movements while managing risk. Create your live VT Markets account and start trading now.

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