OPEC is sticking to its prediction that oil demand will rise by 1.3 million barrels per day this year and in the next. However, trade conflicts pose risks to demand, making these forecasts something to approach with caution. Additionally, OPEC has reduced its expectations for oil supply outside the OPEC+ group. This decline is due to lower oil prices, which make it harder for US oil production to grow.

Impact Of Supply Deficit

OPEC warns that this situation may lead to a supply shortage, giving OPEC+ the chance to boost its oil production. Still, there is skepticism about the optimistic outlook for demand. The information includes predictions that come with risks and uncertainties. It shouldn’t be taken as a suggestion to buy or sell assets without careful personal research. There is no guarantee that this information will be accurate or timely, and individuals bear the responsibility for any investment risks, including the possibility of losing everything. Investing in open markets carries significant risk and can cause emotional stress.

Challenges In Forecasts

OPEC’s recent statement remains hopeful regarding oil demand growth, projecting an increase of 1.3 million barrels per day this year and next. This suggests expectations of stable or improving economic activity in some regions. However, ongoing trade tensions complicate this situation. It’s important to understand this is a cautiously optimistic forecast, depending on whether current global economic tensions do not worsen significantly. At the same time, forecasts for oil supply outside OPEC+ are being lowered, particularly for US production. Lower prices are limiting investments in new oil sources, leading companies to scale back on drilling, especially where projects are no longer profitable. Major US manufacturers are even reducing their previously robust output. This combination points to a potential tightening in supply soon. A decrease in production outside the OPEC+ group, along with steady or slightly rising demand, could lead to temporary undersupply in the markets. This scenario might prompt OPEC+ to modify its production limits to stabilize prices or maintain market share. But doubts remain about whether the demand estimates are too high, possibly overlooking factors like rising global interest rates, slower economic growth in China, and uncertainties regarding energy transition goals. For those trading in energy futures and options, relying too much on high demand figures creates a skewed risk profile. This means that what seems like a safe bet on rising prices could be disrupted by unexpected drops in demand. These risks have real financial implications, impacting capital flows and pricing pressures as market positions adjust. We’ve also seen greater price volatility in long-term oil options, especially with Brent contracts. This signals a disconnect between demand-supply forecasts and actual economic data. The increasing implied volatility shows that traders are becoming more defensive. Mixed signals are appearing across commodity-related stocks. Some major energy companies are reducing their capital spending forecasts, while others continue to invest in anticipation of a stronger price floor later this year. Such differences indicate a lack of consensus, making it challenging for traders to maintain directional positions without hedging against potential downturns. Our focus isn’t just on predicting whether oil prices will rise or fall; it’s about adjusting our probability assessments carefully in the coming weeks. Slow changes in these probabilities can become liabilities. This is a moment of low conviction, where being wrong can be costly. Careful position sizing is essential, as being overly confident, whether bullish or bearish, risks increasing volatility drawdowns. Even if OPEC decides to raise its output, timing will be crucial. Delays or miscommunication could lead to sudden price changes. This has happened in the past, where order fulfillment and compliance do not always align. Current attention should shift to inventory levels, shipping data, and drilling counts from non-OPEC+ suppliers. These concrete indicators will shape expectations more effectively than verbal statements and will serve as early warnings for shifts in supply. We expect that major players are already increasing their hedging ratios, particularly in sectors vulnerable to these changes. Notably, it’s the first time in several quarters that realized volatility in energy commodities has started to exceed implied volatility, albeit slightly. This calls for close monitoring, as it indicates that the actual market movements are outpacing expectations. This gap will likely influence the timing of rehedging and affect spreads across energy options. Clear discrepancies are rare, but a mismatch between predicted outcomes and actual production or consumption—especially from major importing countries—will lead to adjustments in the derivatives market. Those able to adapt to these discrepancies will have the advantage over those fixed on headline projections alone. Create your live VT Markets account and start trading now.

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