Insights 
VT 
OPEC+ is anticipated to approve an increase in oil production during their meeting on Sunday. The potential increase could be 548,000 barrels per day or potentially less.
This decision will affect the global oil supply, although the precise impact will depend on the final agreed upon production increase. The group’s actions are closely monitored as they hold an influential role in the oil market.
Anticipated Impact On Oil Prices
OPEC+ is expected to increase oil production this Sunday, which suggests more supply is coming to the market. Given that more supply with steady demand typically leads to lower prices, we are preparing for a potential drop in crude oil values. This news sets a bearish tone for oil in the short term.
The market has been anticipating this move, so a significant price drop may have already been factored in. We have seen West Texas Intermediate (WTI) crude slip below $75 this past week, a sign that traders were positioning for the announcement. Therefore, the actual decision on Sunday might not cause a dramatic crash unless the production hike is much larger than the expected 548,000 barrels per day.
Recent data reinforces this downward pressure on prices. The latest Energy Information Administration (EIA) report from this past Wednesday showed a surprise build in U.S. crude inventories of over 2.1 million barrels, indicating weaker than expected demand. Combined with lackluster manufacturing PMI data out of China for July, the global demand picture looks soft.
Strategy Considerations
In this environment, we see buying put options as a straightforward strategy for the coming weeks. This allows us to bet on falling prices while limiting our potential loss to the premium paid for the option. We are looking at September puts with strike prices around $72 or $70, which would become profitable if oil prices continue their slide after the meeting.
For those wanting a more cautious approach, we are also considering strategies that bet on a smaller price drop. This can be done by setting up trades that profit if the price of oil falls modestly but are protected if there is an unexpected price spike. These positions are less risky if OPEC+ delivers a smaller-than-expected hike or surprises the market entirely.
We have seen this play out before, such as in late 2023 when announced production cuts failed to stop prices from falling due to overriding global demand fears. The market’s focus can quickly shift from supply decisions to the reality of consumption. The key will be watching for the actual production number on Sunday and how it aligns with market expectations.
