Producer Response and Near-Term Market Fundamentals
We see the US oil rig count has edged up to 433, a small but notable increase. This suggests producers are cautiously responding to stable oil prices, which have been holding above $85 per barrel. It signals a slow, measured confidence in future drilling activity. This small increase in drilling is unlikely to impact immediate supply, which is more important for near-term contracts. The latest EIA report showed a crude inventory draw of 2.5 million barrels, tightening the current market. We are watching summer demand forecasts closely, which the AAA projects will be the highest in five years.Volatility Potential and Trading Strategies
The conflicting signals between tight current inventories and this potential for future production growth create an ideal environment for higher volatility. We believe this makes buying straddles or strangles on front-month WTI contracts an interesting play. This strategy benefits from a significant price move in either direction, which we see as increasingly likely. We are considering establishing calendar spreads, selling longer-dated contracts like the December 2026 future while buying near-term ones like August 2026. This position profits if the front of the curve strengthens relative to the back, a pattern we saw in 2022 when drilling activity began to recover. The rig count data, while small, supports the long-term bearish side of this spread.Start trading now — click here to create your real VT Markets account.
