The weekly oil inventory report is expected to show a decrease of 1.759 million barrels in crude oil and a drop of 0.915 million barrels in gasoline. However, distillates are predicted to increase by 0.928 million barrels. Last week, Cushing recorded a small increase of 0.045 million barrels. Recently, private data indicated a larger crude oil drop of 2.4 million barrels.

Current Trading Values

Private reports from the API state that crude oil is currently priced at $62.54 per barrel. This provides a reference point for the upcoming inventory data. With private data showing a bigger crude drop than expected, we may see a short-term price rise. If the official report confirms a draw of 2 million barrels or more, we could see crude prices push towards the $65 resistance. Traders might consider short-dated call options to take advantage of this possible price increase. The gasoline drop aligns with the end of the summer driving season, but demand is likely to fall sharply after Labor Day in early September. The increase in distillates, which includes diesel and heating oil, is more worrisome. This trend connects with recent PMI data showing a slight decrease in Eurozone manufacturing at 49.5. This suggests that any price surge in crude may be limited, making a bearish strategy on the crack spread a good option in the coming weeks. Given the uncertainties, implied volatility for oil options is on the rise, making them pricier. We could consider selling premium using strategies like iron condors if we believe prices will stay between $60 and $66 after the inventory data is released. This approach could benefit from a drop in volatility once the numbers are public.

Broader Market Considerations

The overall market focuses on the $62 price point, which is low for many OPEC+ producers. There is increasing talk about the cartel considering further production cuts if prices do not recover by their next meeting. This gives the market a cushion, making it risky to be outright short, and suggests an opportunity to sell out-of-the-money put options below the $58 mark. We remember the sharp price drop in late 2023 when worries about weak global demand caused WTI crude to fall nearly 20% in one quarter. While current U.S. demand seems stable, the increase in distillates raises a red flag. Therefore, any long positions should be hedged against possible economic downturns. Create your live VT Markets account and start trading now.

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