Insights 
VT 
WTI Oil has risen to $61.00, despite being over 6% lower on the week. Concerns about a sharp increase in production after the upcoming OPEC meeting have negatively impacted prices.
In the US, EIA data revealed a 2.4 million barrel increase in Crude Oil stocks for the week ending August 29. This indicates a decline in refining activity and gasoline demand, contributing to lower prices.
Opec Production Decisions
A report suggested that OPEC+ countries might raise output by up to 500,000 barrels per day in November. This expected increase runs counter to weak global demand, especially as the US Government shutdown may further slow economic growth and energy demand.
WTI Oil finds its benchmark status due to its low gravity and sulphur content. Global supply and demand significantly influence its price. The US Dollar’s value and OPEC’s production decisions also impact the market.
Weekly Oil inventory reports from API and EIA reflect shifts in supply and demand, affecting price. If inventories drop, it can suggest demand, boosting prices, while higher inventories can indicate increased supply, reducing prices.
With West Texas Intermediate crude oil hovering around $61.00, we see significant downward pressure for the coming weeks. The market is absorbing the recent OPEC+ decision to increase output by 400,000 barrels per day starting in November. This confirms the supply-side fears that drove prices down over 6% last week.
Us Government Shutdown
On the demand side, the situation in the US is getting worse. The government shutdown has now entered its second week, with the Congressional Budget Office estimating it could shave 0.1% off Q4 GDP for every week it continues. This directly impacts energy consumption in the world’s largest economy.
This trend is confirmed by the latest inventory data. Looking back, the 2.4 million barrel build in late August was a clear warning, and the most recent EIA report for the week ending September 26 showed another inventory increase of 1.8 million barrels. Two consecutive builds signal that supply is outpacing demand right now.
Globally, the picture is not much better. Recent Purchasing Managers’ Index (PMI) data from China registered at 49.8, indicating a slight contraction in manufacturing activity. Slowing factory output in the world’s second-largest oil consumer is a major bearish signal for global demand.
We saw a similar dynamic unfold in the fourth quarter of 2018. Back then, a combination of rising OPEC+ production and fears of a global economic slowdown caused WTI prices to fall over 40% in just three months. The current setup of rising supply and weakening demand feels very familiar.
Given these factors, derivative traders should remain cautious of any small price rallies. The persistent oversupply and demand destruction concerns suggest significant downside risk remains. Strategies that benefit from falling prices or increased volatility, such as buying put options or establishing short futures positions, should be considered.
