OPEC+ is likely to approve an increase in oil production during their meeting on Sunday. This increase might be around 548,000 barrels per day, or possibly less. The decision will influence global oil supply. However, the exact effect will depend on the final production increase agreed upon. OPEC+ actions are closely watched because they play a significant role in the oil market.

Expected Impact on Oil Prices

OPEC+ is set to boost oil production this Sunday, suggesting more supply will enter the market. Generally, when supply increases while demand remains steady, prices tend to fall. Therefore, we expect crude oil prices may drop, creating a bearish outlook in the short term. The market has been preparing for this, so a large price drop might already be reflected in current prices. This past week, West Texas Intermediate (WTI) crude fell below $75, indicating that traders were getting ready for the announcement. Thus, the actual decision on Sunday may not lead to a drastic price drop unless the increase surpasses the expected 548,000 barrels per day. Recent data supports this bearish trend. A report from the Energy Information Administration (EIA) released Wednesday showed an unexpected rise in U.S. crude inventories of over 2.1 million barrels, suggesting weaker demand. Additionally, manufacturing PMI data from China for July was disappointing, reflecting soft global demand.

Strategy Considerations

In this situation, buying put options seems like a straightforward strategy for the coming weeks. This lets us bet on falling prices while limiting our risk to the premium paid for the option. We are considering September puts with strike prices around $72 or $70, which would become profitable if oil prices continue to drop after the meeting. For those preferring a more cautious approach, we also recommend options that aim for smaller price drops. These trades can profit if oil prices fall slightly but offer protection against unexpected price spikes. Such strategies are lower risk, especially if OPEC+ announces a smaller hike or surprises the market. We’ve seen similar situations in the past, like in late 2023 when production cuts did not prevent prices from falling due to persistent global demand concerns. The market can quickly shift focus from supply decisions to actual consumption realities. The key will be to watch for the production numbers announced on Sunday and how they stack up against market expectations. Create your live VT Markets account and start trading now.

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