US Energy Information Administration data for the week to 5 June showed crude oil inventories fell by 7.228 million barrels. That compared with expectations for a 4 million-barrel draw. The reported decline was therefore deeper than forecast.
Robust Demand And Bullish Supply-Demand Dynamics
The recent crude oil inventory report showed a draw of over 7.2 million barrels, which was significantly larger than the 4 million barrel draw we expected. This is a clear bullish signal, suggesting that demand is outstripping supply more than the market had priced in. This confirms our view that consumption is robust heading into the peak summer demand season.
This data point is not happening in a vacuum. We see US gasoline demand already up 2.5% year-over-year according to the most recent weekly figures, and AAA is forecasting record travel for the upcoming July 4th holiday. This demand strength is a powerful tailwind for crude prices in the coming weeks. The larger-than-expected draw is likely the start of a trend, not a one-time event.
On the supply side, discipline from OPEC+ appears to be holding firm, with the group signaling no immediate plans to increase production quotas. Meanwhile, recent Baker Hughes data shows the US oil rig count has been flat, indicating shale producers are not aggressively ramping up output. This combination of strong demand and constrained supply creates a very constructive environment for higher oil prices.
Options Strategies And Market Positioning
Given this outlook, we are looking at buying call options to position for a move higher in WTI crude prices. Specifically, we believe August contracts with strike prices around $90 and $95 per barrel offer an attractive risk-reward profile. This allows us to capture the anticipated price appreciation through the core of the summer driving season.
For those wanting to manage upfront costs, we are also considering bull call spreads. By selling a higher strike call, such as the August $100, against the purchase of the August $90 call, we can reduce our premium outlay. This strategy would still allow us to profit from a move up to $100 while defining our risk.
This market setup is reminiscent of the price run-up seen in mid-2022, though current volatility levels are not yet as extreme. The CBOE Crude Oil Volatility Index (OVX) is trading near 34, which is elevated but not prohibitive for establishing these positions. We feel it is prudent to act now before a potential price surge causes options premiums to expand significantly.
