A private survey of oil inventory indicates a crude oil build instead of the expected draw, with differing results from Reuters. The survey suggested a headline crude draw of 0.6 million barrels, a 0.2 million barrel increase in distillates, and a 1 million barrel decrease in gasoline.
This data is from the American Petroleum Institute (API), known for surveying oil storage facilities and companies. The US official government data, due Wednesday, contrasts with this private survey.
EIA Report And Its Significance
The US Energy Information Administration (EIA) will release the government data, drawing information from the Department of Energy and other agencies. The EIA report offers more comprehensive insights into refinery inputs and outputs, crude oil market status, and storage levels for various crude grades. It is generally considered more accurate compared to the API survey.
This discrepancy is exactly the kind of noise we thrive on. The market gets fixated on a headline number from a private survey that is, frankly, often a poor predictor of the real picture. While others get tangled in the debate, we see the opportunity. The only number that matters is the one from the official government report, and this disagreement simply winds the spring tighter for the moment it is released. The key isn’t what the private survey said; it’s that the survey created doubt and division ahead of the data that actually moves markets.
Our response in the coming weeks should be centered on volatility, not direction. The conflict between the two reports guarantees a repricing event when the official government figures land. The market is now uncertain, and uncertainty is an option trader’s best friend. We’re seeing this play out against a complex global backdrop. The latest OPEC+ meeting resulted in an agreement to extend deep production cuts into 2025, a fundamentally bullish signal. Yet, they also outlined a plan to begin phasing out some voluntary cuts later this year, injecting long-term supply questions. This creates a structural tension. As of early June 2024, data showed US crude stockpiles rising by 1.2 million barrels, surprising a market that had priced in a draw of over 2 million. This is the kind of whipsaw that punishes directional bets but richly rewards those positioned for a sharp move.
Strategy For Profiting From Volatility
History shows that the hours surrounding the Wednesday morning official release are often the most volatile of the week for WTI. We saw a similar dynamic in the spring of 2023 when a series of large, unexpected inventory builds sent WTI tumbling from the mid-$80s to the high-$60s in just a few weeks. Those who simply bet on a big move, rather than guessing its direction, were insulated from the chaos.
Therefore, our strategy should be to buy volatility. We are looking at simple, near-term long straddles or strangles on front-month crude futures. This allows us to profit from a significant price move, up or down, that will inevitably follow the official data release. We are not trying to outsmart the market by predicting the inventory number; we are simply betting that the current confusion will resolve itself violently. The premium we pay for these options is the cost of admission for a high-probability volatility event. We’ll be looking to enter these positions as implied volatility remains reasonable before the official release and capitalize on the immediate repricing that follows.
