West Texas Intermediate (WTI) oil prices fell early Thursday during the European session. WTI was trading at $57.95 per barrel, down from $58.77 the day before. Similarly, Brent crude oil also dropped, trading at $61.62, compared to the previous close of $62.46. WTI oil comes from the U.S. and is a key benchmark in the oil market, recognized for its low gravity and sulfur content. Its price fluctuates based on supply and demand, geopolitical events, and the value of the U.S. Dollar since oil is mainly traded in U.S. Dollars.

Impact of Weekly Oil Reports

The American Petroleum Institute (API) and the Energy Information Agency (EIA) release weekly oil inventory reports that influence WTI prices. If inventories fall, it suggests higher demand, which can raise prices. Conversely, an increase in inventories indicates greater supply, leading to lower prices. OPEC, consisting of 12 oil-producing nations, can also affect WTI prices by changing production quotas during meetings. Reducing quotas can increase oil prices by limiting supply, while increasing production can lower prices. The expanded OPEC+ group, which includes additional nations like Russia, also plays a role. The drop in WTI to below $58 today aligns with recent data. The EIA report yesterday showed an unexpected rise in crude inventories of 3.6 million barrels, contrary to expectations of a decrease. This indicates that U.S. supply is currently outpacing demand. Additionally, we must consider the OPEC+ decision made two weeks ago. Their agreement on voluntary cuts of 2.2 million barrels per day has raised doubts about compliance, reminiscent of late 2023 when market skepticism kept prices lower despite official announcements.

Challenges on the Demand Side

Looking ahead to 2026, the demand side appears weak. Recent manufacturing PMI data from China has contracted for the third month in a row, indicating a slowdown in the world’s largest oil importer. This coincides with bleak economic forecasts for Europe, suggesting slow global growth. The strength of the U.S. Dollar is another hurdle. With the Dollar Index remaining above 105, oil becomes pricier for buyers using other currencies, likely reducing demand. This currency pressure is expected to continue affecting prices in the coming weeks. Given this bearish outlook, considering put options may be wise to safeguard against further declines, especially with WTI falling below the crucial $60 support level. For those anticipating increased volatility towards year-end without a clear direction, setting up straddles may be a smart strategy. Currently, implied volatility isn’t too high, making this a favorable entry point. Looking forward, the API and EIA weekly inventory reports next Tuesday and Wednesday will be vital for observing signs of reduced supply. We should also monitor any statements from the Federal Reserve, as their interest rate decisions directly affect the dollar’s strength. Create your live VT Markets account and start trading now.

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