The US Department of Energy reported that crude oil inventories fell by 6.9 million barrels last week. Gasoline stocks dropped by 5.9 million barrels, while distillate stocks decreased by 3.4 million barrels.

This drop in crude oil inventories happened because net imports significantly declined, which was a bigger factor than the weaker crude oil processing. This change also caused gasoline and distillate stocks to decrease, driven by higher demand for gasoline.

Inventory Levels and Market Impact

Crude oil and distillate inventories are now much lower than their five-year averages. Gasoline inventories are also below normal for this time of year, but the difference is small. Similar reports from the API had already pointed to notable declines, so the release of this information had only a slight effect on oil prices.

The recent sharp drop in US crude, gasoline, and distillate inventories suggests a tighter market. With crude stocks well below their five-year average, the supply cushion is thin. This is particularly the case for distillates, which are also considerably below seasonal averages as we head into winter heating season.

Given these significant inventory declines, there is a clear case for bullish energy derivatives in the upcoming weeks. The decrease in heating oil stocks is especially noteworthy as we start November, indicating that prices could become very sensitive to cold weather forecasts. Traders may want to consider strategies that profit from rising prices, such as buying call options on WTI futures.

This tight market is occurring while the Strategic Petroleum Reserve is around 345 million barrels, a level not consistently seen since the early 1980s. This situation removes a key safety buffer. We experienced similar concerns about tight distillate supply before winter in 2022, which resulted in significant price volatility. Current conditions suggest we might see similar sensitivities again.

Market Strategy and Demand

On the demand side, recent data shows that US GDP growth for Q3 2025 was robust at 2.4%. This suggests that consumer and industrial energy needs will likely remain strong. This demand is meeting constrained supply, as reports indicate that OPEC+ has continued its production cuts with high compliance through September 2025. These factors help support price stability.

Even though the market’s immediate reaction was mild since the draws were expected, the underlying physical tightness is now confirmed. This makes the market very vulnerable to any unexpected supply disruptions or sudden increases in demand. Therefore, preparing for increased volatility, possibly through long straddles, could be a wise strategy.

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