Oil prices are dropping, with NYMEX WTI falling more than 4% to about $58.5 per barrel. This decline is fueled by expectations of a global oil surplus and a negative API inventory report. Commodity experts say West Texas Intermediate (WTI) has shifted to contango, which shows concerns about oversupply. OPEC keeps its global oil demand growth forecasts at 1.3 million barrels per day (b/d) for this year and 1.4 million b/d for 2026. Non-OPEC+ producers are expected to increase supply by 920,000 b/d in 2025 and 630,000 b/d in 2026, driven by higher output from the US, Canada, Brazil, and Argentina. OPEC has updated its forecasts to expect a slight surplus in the global oil market by 2026.

OPEC Production and Inventory Reports

In October, OPEC’s production rose slightly by 33,000 b/d to 28.5 million b/d, which is still below the expected increase of 450,000 b/d. Gains from Saudi Arabia, Kuwait, Iraq, and Nigeria were negated by declines in Iran and Libya. The API noted an increase of 1.3 million barrels in US crude inventories, with Cushing stocks decreasing by 43,000 barrels. The EIA has raised US crude oil production forecasts to 13.59 million b/d for 2025 and 13.58 million b/d for 2026. In contrast, US petroleum consumption is expected to stay steady at about 20.5 million b/d this year and in 2026. Currently, WTI crude prices are falling below $60 per barrel due to clear signs of a supply surplus, indicating potential future weakness. The recent 4% drop, driven by rising US inventories and bearish OPEC forecasts, highlights immediate downward pressure in the market. We need to prepare for either a further price drop or a period of consistently low prices.

Market Strategies and Future Outlook

The shift of the WTI futures curve to contango is an important indicator of physical oversupply that we must recognize. This situation, where near-term prices are lower than future prices, has historically led to more price declines, similar to what we saw briefly in early 2023. We should look at trades that profit from a widening contango, like selling the December 2025 contract while buying the June 2026 contract. With the EIA confirming US production will average nearly 13.6 million b/d in 2025, supply pressure continues to rise. This ongoing output from non-OPEC producers is creating a market scenario similar to 2014-2016 when prices fell below $30 per barrel. The market currently has an estimated surplus of 500,000 barrels per day, which is projected to grow into 2026. Given the risk of further price declines, buying put options on WTI with a strike price of around $55 or $50 is a defined-risk strategy to take advantage of this bearish trend. Implied volatility has reached a three-month high of 34% and may increase further if we breach key support levels, making long-option strategies appealing. Selling out-of-the-money call credit spreads is another way to generate income while holding a bearish to neutral outlook. The supply glut is worsened by weak demand; US petroleum consumption is expected to remain flat. Recent manufacturing PMI data from the Eurozone showed a deeper contraction than expected, lowering forecasts for fuel demand as winter approaches. This combination of rising supply and stagnant global demand strengthens the bearish outlook for oil in the weeks ahead. Create your live VT Markets account and start trading now.

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