Insights 
VT 
The price of West Texas Intermediate (WTI) US Oil has increased to $60.40, marking a 0.55% rise after three days of decline. This upturn is attributed to a larger-than-expected drawdown in US crude oil inventories and anticipation of a Federal Reserve rate cut.
According to the US Energy Information Administration (EIA), US crude oil inventories decreased by about 6.9 million barrels for the week ending October 24. This contrasts with the American Petroleum Institute’s report of a 4-million-barrel draw. Current stockpiles are approximately 6% below the five-year seasonal average, with significant reductions in gasoline and distillate inventories.
Impact Of Federal Reserve Rate Cut
Expectations of a 25-basis-point rate cut by the Federal Reserve are supporting higher WTI Oil prices. A lower interest rate could weaken the US dollar, making oil cheaper and boosting global demand. However, output increases by OPEC+ in December, potentially around 137,000 barrels per day, may limit price rises.
WTI finds support near the 100-period Simple Moving Average at $59.49. A breakout above $60.84 could lead to further gains, while a drop below $59.49 might result in renewed selling. The next support level is at October 20’s low of $55.97.
Looking back at that period in late October 2019, we saw how a sharp 6.9-million-barrel inventory draw and a confirmed Fed rate cut created a strong bullish signal for WTI. Today, the landscape is different, as the latest EIA data from last week showed a surprise inventory build of 2.1 million barrels. This current trend suggests that near-term demand may be softening as we head into the winter months.
Monetary Policy Environment And Oil Prices
The monetary policy environment has also shifted dramatically from the easing cycle we observed back in 2019. We are now contending with a federal funds rate that has held steady at 4.75% for two consecutive quarters, a stark contrast to the rate cuts that weakened the dollar and supported oil prices then. This sustained restrictive policy is a key reason why recent gasoline demand figures are trailing last year’s numbers by nearly 3%.
On the supply side, the situation has also evolved from the modest OPEC+ output increase planned in late 2019. The cartel is now maintaining its firm production cuts, which have kept a floor under prices and prevented a steeper decline despite weakening economic indicators. This discipline is the primary factor holding WTI crude above the $80 support level in the current market.
Given these conflicting signals of soft demand against tight supply, we believe derivative traders should consider strategies that manage a range-bound market. Selling call and put options far from the current price could allow for premium collection while the market decides its next major direction. This approach hedges against the kind of uncertainty that was less prevalent during the clearer bullish trend we saw in 2019.
