OPEC is keeping its oil demand forecasts steady for this year and next, according to a Commerzbank report. In September, OPEC+ countries increased production by 540,000 barrels per day, but this was still 260,000 barrels per day below their agreed level due to lower outputs from countries like Iraq and Russia. Kazakhstan pumped more oil than allowed, but the overall production of over 43 million barrels per day means the oil market is undersupplied. This is based on OPEC’s demand estimates. Additionally, OPEC predicts an oversupply in the first half of 2026, followed by a deficit in the latter half.

Oil Market Balance Predictions

Next year, the oil market is expected to be nearly balanced on average, but other agencies, like the US Energy Information Administration (EIA) and IEA, anticipate a larger oversupply. The IEA will publish its new forecasts today. Currently, we expect the market to stay undersupplied this quarter, which should help oil prices remain high in the short term. This leads us to consider bullish positions on front-month futures contracts, like those for December 2025 and January 2026. After recently nearing the $90 per barrel mark, WTI crude seems well-supported for now. However, a significant disagreement is emerging for next year, indicating potential volatility ahead. While OPEC expects a balanced market in 2026, the EIA’s latest report from early October 2025 suggests a global supply surplus of nearly 800,000 barrels per day in the first half of 2026. This stark difference in projections signals that we should brace for notable price fluctuations as the new year nears.

Risk Management Strategies

To navigate this divide, we’re exploring risk management strategies across different timeframes. One approach is to use call options on near-term contracts to take advantage of the current undersupply. At the same time, we plan to buy protective put options for contracts set for the second quarter of 2026 to guard against the expected oversupply. Demand remains an uncertain factor, which likely explains the differing forecasts. Recent economic data has been mixed. Purchasing managers’ indexes in Europe show sluggish growth, while the US economy remains strong. This uncertainty prompts us to be cautious about maintaining unhedged long positions well into next year, as any dip in global demand could support the more bearish oversupply forecasts. In 2023, we observed a similar situation where conflicting views on a possible recession versus tight OPEC+ supply led to unpredictable markets. History shows that when forecasters disagree significantly, the market often fluctuates wildly rather than following a clear trend. Therefore, selling options to collect premiums could also be a smart strategy for early 2026. Consequently, focusing on volatility has become an appealing trading option. Implied volatility for mid-2026 options has begun to rise as the market adjusts for this uncertainty. This climate makes option strategies like straddles or strangles—profiting from significant price movements in either direction—worth considering in the weeks ahead. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now