Disconnect Between Geopolitics and Market Fundamentals
We observe that the market is currently overlooking geopolitical flare-ups, focusing instead on hopes for a diplomatic solution between the US and Iran. This sentiment is creating a disconnect between the falling price and tightening physical supply. We believe this presents a window of opportunity for bullish positions in the coming weeks.Positioning for Rebound Amid Supply Tightness
The upcoming EIA report is expected to confirm a 4 million barrel draw, bringing US commercial inventories close to 425 million barrels, the lowest for this time of year since 2003. Recent data also shows OPEC+ production discipline remains high, with compliance holding firm above 100% last month. This supply tightness is running head-on into forecasts of record summer gasoline demand in the US, projected to exceed 9.5 million barrels per day. Given the expected supply shortage in July and August, we are positioning for a rebound by acquiring call options. Specifically, we are looking at August WTI contracts with strike prices in the $90 to $95 range. These options allow us to capture potential upside while the current downtrend has made their premiums relatively inexpensive. This setup is reminiscent of market conditions in mid-2022 when fundamental supply tightness eventually overpowered recessionary fears, causing a significant price rally. The market’s current complacency towards Mideast tensions is creating a similar dynamic. We see the current price of $86.60 as an attractive entry point before the supply reality forces prices higher.Start trading now — click here to create your real VT Markets account.
