US weekly crude oil stocks rose by 13.4 million barrels in the week ending 6 February.
In the previous week, the API measure showed a fall of 11.1 million barrels.
Bearish Inventory Shock
This massive 13.4 million barrel inventory build is a strongly bearish signal for crude oil prices. Such a surplus indicates that supply is overwhelming current demand, a sharp reversal from the drawdowns we saw previously. We expect this to apply immediate downward pressure on front-month futures contracts.
This build aligns with recent data showing U.S. refinery utilization rates have dipped to 82.5%, a seasonal low as facilities undergo maintenance before the summer driving season. Concurrently, domestic crude production has held steady near its recent high of 13.3 million barrels per day. Less oil being processed combined with high output is the direct cause of this glut.
We remember a similar situation in the winter of 2025, when a large inventory build after a refinery disruption led to a multi-week price slide. That historical pattern suggests the current weakness may not be a one-week event. Therefore, we view this as an opportunity to position for lower prices in the coming month.
Positioning And Risk Strategy
For the weeks ahead, we should consider buying put options on the April WTI contract, targeting strike prices below $72 per barrel. Establishing bear call spreads would also be a prudent strategy to collect premium while betting on prices to stay flat or fall. These positions allow us to capitalize on the expected price decline driven by this oversupply.
