Conflicting Reports

The latest figures differ from several reports circulating online. Some sources expected a draw in crude oil, but a build was reported instead. Let’s simplify this. The numbers from the American Petroleum Institute are crucial. They serve as an early warning sign about summer demand, which has been supporting prices. The unexpected increase of over 800,000 barrels in crude, when a decrease was anticipated, is notable. What’s even more concerning is the nearly 2 million barrel increase in gasoline stocks during the peak driving season. This is a significant warning signal. Here’s how we’re adapting our strategy. Now is not the time for risky, optimistic bets. The data hints at weaker demand than anticipated. We’re examining the latest official figures from the EIA, which not only confirmed the increase but reported a crude inventory rise of 2.3 million barrels last week. Additionally, the four-week average for gasoline demand is around 8.8 million barrels per day, about 2% lower than the same time last year. The market wasn’t ready for this.

Protective Trading Strategies

For traders, this means adopting a more cautious approach and leaning towards short positions. We plan to buy out-of-the-money puts on WTI, focusing on strikes below the $78 mark as a budget-friendly way to prepare for a possible decline. Increases in gasoline and distillate stocks indicate challenges for refining profits. This puts pressure on the crack spread, a vital measure of refiner earnings. We see a chance to sell RBOB gasoline futures or buy puts on major refiner ETFs, as their earnings expectations could be overly optimistic. Historically, unexpected inventory increases in mid-July often signal an early end to the summer rally, typically leading to lower prices in the fall. Recent manufacturing figures from China also indicate a slowdown for the two largest consumers worldwide. This adds more volatility to the market. We’re closely monitoring the CBOE Crude Oil Volatility Index (OVX); a rise here could make options like straddles more attractive for those anticipating a sharp movement without knowing the direction. The current trend seems to be shifting, and our strategy must adapt accordingly. Create your live VT Markets account and start trading now.

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