Oil market fundamentals indicate that prices may fall, according to TD Securities. A recent report suggests that relaxed supply conditions could lower crude oil prices by $2-3 per barrel. Increased exports from key regions are helping ease supply issues and affect market conditions.

Improving Supply Conditions

Exports from the port of Novorossiysk are set to rise now that maintenance at the CPC terminal’s SPM-3 is complete. Also, China has paused its inventory stockpiling in January, which lowers near-term demand and reduces inventories for the month. This comes during the peak refinery turnaround season, which decreases the demand from refineries and leaves more oil available in the market. Geopolitical risks are still a factor in the market, especially with potential events in Iran that could change these predictions. However, if geopolitical risks decrease alongside weakening fundamentals, prices may drop even more. The shifts in supply and demand are creating a situation where prices could fall. With market fundamentals suggesting a softer environment, crude oil prices could drop by at least $2-3 in the near future. The price rise seen in late 2025 seems to be losing momentum, as both supply and demand are now pressuring the market. This change indicates potential profits for bearish positions in the coming weeks. On the supply side, earlier disruptions are fading. Data shows that Russian seaborne exports from major ports, like Novorossiysk, have increased to over 3.6 million barrels per day, a level not consistently achieved since the third quarter of 2025. This surge in supply puts direct pressure on spot prices.

Weakening Demand Conditions

At the same time, near-term demand is weakening, particularly due to a pause in China’s inventory building this month. Official customs data shows a 4% drop in crude imports into China for January compared to December’s average. This slowdown in stockpiling coinciding with the peak refinery turnaround season will further reduce crude demand through February and March. Given this outlook, adopting bearish positions seems wise. Purchasing March or April WTI put options with strike prices a few dollars below the current market offers a clear and defined risk strategy to profit from the expected drop. This straightforward approach allows traders to position themselves for the anticipated decline in crude prices. The expectation that aggressive backwardation will ease also presents opportunities in calendar spreads. We suggest selling the front-month contract while buying a deferred contract, like selling March and buying June futures. This strategy would yield profits if near-term oil prices decline faster than those for later delivery. However, we must be cautious, as a significant supply disruption—especially one involving Iran—could undermine this bearish outlook. Geopolitical tensions remain the biggest risk for any short positions. Therefore, it’s essential to manage any bearish trades with strict stop-loss orders to guard against sudden market reversals. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now