The upcoming release of weekly oil inventory data anticipates a crude oil drawdown of 1.759 million barrels and a gasoline drawdown of 0.915 million barrels. There is also an expected increase in distillates by 0.928 million barrels.
In comparison, last week’s data at Cushing recorded a slight build of 0.045 million barrels. Recent private data reports a crude oil drawdown of 2.4 million barrels.
Current Trading Values
According to private data from the API, current trading values show crude oil priced at $62.54 per barrel. This figure provides context to the anticipated official inventory data.
With the private data showing a larger crude drawdown than what the market expects from the official report, we should be prepared for a potential short-term price pop. If the official number confirms a draw of 2 million barrels or more, bullish momentum could briefly take crude towards the $65 resistance level. Traders can use short-dated call options to play this potential upside surprise.
The gasoline drawdown is consistent with the end of the summer driving season, but demand is expected to fall sharply after the Labor Day holiday in early September. The build in distillates, which includes diesel and heating oil, is more concerning and aligns with recent PMI data showing a slight contraction in Eurozone manufacturing to 49.5. This weakness suggests that any price rally in crude may be capped, making a bearish play on the crack spread a viable strategy for the coming weeks.
Given the uncertainty, implied volatility on oil options has ticked up, making them more expensive. We could consider selling premium through strategies like iron condors if we believe the price will remain range-bound between $60 and $66 after the inventory news is absorbed. This approach profits from the expected drop in volatility once the actual numbers are public.
Broader Market Considerations
The broader picture is dominated by the $62 price level, which is uncomfortably low for many OPEC+ producers. We are hearing increased chatter about the cartel considering an extension or deepening of production cuts if prices fail to rebound by their next meeting. This provides a soft floor for the market, making it risky to be outright short and presenting an opportunity to sell out-of-the-money put options below the $58 strike.
We remember the sharp price decline in late 2023, when similar concerns about sluggish global demand sent WTI crude tumbling nearly 20% in just one quarter. While current U.S. demand appears stable for now, the distillate build is an early warning sign that we cannot ignore. Therefore, any long positions should be hedged against a potential downturn in the broader economy.
