Insights 
VT 
OPEC maintains its forecasts for oil demand for this year and the next, according to a report from Commerzbank. Despite a rise in production by OPEC+ countries by 540,000 barrels per day in September, production was still 260,000 barrels per day below the agreed level due to lower output from countries like Iraq and Russia.
Kazakhstan produced more than its quota, yet with a production total of over 43 million barrels per day, the oil market is currently undersupplied. This is based on OPEC’s estimation of demand for oil from OPEC+. OPEC forecasts an oversupply in the first half of 2026, followed by a predicted deficit in the second half.
Oil Market Balance Predictions
The annual average is expected to show a nearly balanced market next year, although other agencies such as the US Energy Information Administration and IEA forecast a larger oversupply. The IEA is set to release its new forecasts today.
The current market is expected to remain undersupplied for the rest of this quarter, which should support oil prices in the near term. This suggests we should favor bullish positions on front-month futures contracts, like those for December 2025 and January 2026. After recently testing the $90 per barrel mark, WTI crude has the fundamental backing to stay elevated for now.
However, a major disagreement is brewing for next year, creating a clear source of future volatility. While OPEC sees a balanced market in 2026, the latest US Energy Information Administration report from early October 2025 projected a global supply surplus of nearly 800,000 barrels per day for the first half of 2026. This sharp divergence in outlooks is a signal that we should prepare for significant price swings as the new year approaches.
Risk Management Strategies
Given this divide, we are considering strategies that manage risk across different timeframes. A practical approach involves using call options for near-term contracts to capitalize on the current undersupply. Simultaneously, we are looking to buy protective put options for contracts dated in the second quarter of 2026 to hedge against the widely anticipated glut.
The demand side of the equation remains a key variable, likely explaining the conflicting forecasts. Recent economic data has been mixed, with purchasing managers’ indexes in Europe showing sluggishness while US growth remains resilient. This uncertainty makes us cautious about holding unhedged long positions deep into next year, as any faltering in global demand would validate the more bearish oversupply forecasts.
We saw a similar dynamic back in 2023, where conflicting narratives about a potential recession versus tight OPEC+ supply led to choppy and unpredictable markets. That historical period teaches us that when forecasters disagree so strongly, the market often trades in a volatile range rather than a clear trend. This suggests that selling options to collect premium could also be a viable strategy for early 2026.
Therefore, focusing on volatility itself is becoming an attractive trade. Implied volatility on mid-2026 options has already started to increase as the market prices in this uncertainty. This environment makes option structures like straddles or strangles, which profit from a large price move in either direction, worth considering in the coming weeks.
