WTI Oil is currently at $61.00, even though it has dropped more than 6% this week. Concerns about a potential surge in production following the upcoming OPEC meeting are hurting prices. In the US, the EIA released data showing a 2.4 million barrel rise in Crude Oil stocks for the week ending August 29. This suggests reduced refining activity and lower gasoline demand, leading to falling prices.

OPEC Production Decisions

A report indicates that OPEC+ countries may increase output by as much as 500,000 barrels per day in November. This expected rise goes against weak global demand, as a US Government shutdown could further slow economic growth and energy needs. WTI Oil’s benchmark status comes from its low gravity and sulfur content. Its price is heavily affected by global supply and demand. Additionally, the value of the US Dollar and OPEC’s production decisions play a crucial role. Weekly oil inventory reports from API and EIA show changes in supply and demand, which directly influence prices. A drop in inventories often suggests higher demand and can boost prices, while increased inventories typically mean more supply and lower prices. With West Texas Intermediate crude oil around $61.00, we anticipate strong downward pressure in the coming weeks. The market is adjusting to the recent OPEC+ decision to raise output by 400,000 barrels per day starting in November, reinforcing concerns about supply that pushed prices down over 6% last week.

US Government Shutdown

On the demand side, the situation in the US is worsening. The government shutdown is now in its second week. The Congressional Budget Office estimates it could reduce Q4 GDP by 0.1% for every week it lasts. This will directly affect energy use in the world’s largest economy. Recent inventory data supports this trend. The 2.4 million barrel build in late August was a warning sign, and the latest EIA report for the week ending September 26 showed another increase of 1.8 million barrels. Two consecutive builds indicate that supply is currently exceeding demand. Globally, things are not looking better. The latest Purchasing Managers’ Index (PMI) data from China is at 49.8, showing a slight contraction in manufacturing. Slowing factory output in this major oil consumer points to weaker global demand. A similar situation occurred in the fourth quarter of 2018 when rising OPEC+ production and fears of a global economic slowdown caused WTI prices to plummet over 40% in just three months. The current combination of rising supply and weakening demand feels quite familiar. Considering these factors, derivative traders should be wary of any small price gains. The ongoing oversupply and concerns over demand destruction indicate that significant downside risks remain. Strategies that benefit from falling prices or increased volatility, like buying put options or establishing short futures positions, should be explored. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now