The eight oil-producing nations of OPEC+ agreed to raise output in August, opting for a larger-than-expected increase. OPEC+ cited a steady global economic outlook and healthy market fundamentals. The crude oil market remains under pressure from subdued prices, persistent supply growth, and uncertain demand prospects.
WTI SOARED ON CONFLICT, SANK JUST AS FAST ON CEASEFIRE
June saw heightened volatility in WTI crude prices, driven by a short-lived conflict between Israel and Iran. Prices surged from USD 68/b on 12/Jun (one day before Israel struck Iran) to a five-month high of USD 78.40/b on 23/Jun, following the U.S. strike on three Iranian nuclear facilities.
Fears of a potential closure of the Strait of Hormuz, a critical chokepoint for ~20% of global oil flows, amplified the rally.
However, prices swiftly retreated as a ceasefire was announced within 24 hours. The rapid de-escalation erased most of the geopolitical risk premium, pushing crude back toward pre-conflict levels. Implied volatility and skew also dropped.
Source: CME CVOL
While flare-ups like Iran halting cooperation with the U.N. nuclear watchdog on 02/Jul (Wed) briefly lifted WTI prices but a surprise U.S. inventory build quickly capped the gains.
Overall, June’s rally was driven by geopolitical shocks, not sustained fundamentals. Oversupply concerns remain dominant.
OPEC+ ACCELERATES OUTPUT RESTORATION EVEN AS DEMAND WORRIES LOOM
With geopolitical tensions easing, market attention has shifted back to supply-demand fundamentals. Global oil demand remains sluggish, heightening concerns of a potential oversupply, especially as OPEC+ continues to unwind its production cuts.
On 05/Jul (Sat), eight key members of the OPEC+ alliance—Saudi Arabia, Russia, the UAE, Iraq, Kuwait, Kazakhstan, Algeria, and Oman met virtually and agreed to raise oil output in August. Instead of the anticipated 411,000 bpd increase, the group opted for a steeper hike of 548,000 bpd.
OPEC+ has been curbing output since 2022 to support prices. However, the alliance began reversing course this year to regain market share, amid rising competition from non-OPEC producers and pressure from Washington to help ease fuel prices.
This group began unwinding the voluntary cut of 2.2 million bpd in April. The original plan was to gradually increase production by 137,000 bpd each month through September 2026. Yet, after only one month at that pace, the group accelerated the process, tripling the monthly hike to 411,000 bpd for May, June, and July.
As of August, OPEC+ will have restored 1.92 million bpd of the 2.2 million bpd initially cut, leaving just 280,000 bpd to be brought back.
Following years of output cuts to stabilize prices, OPEC+ is now focused on expanding its market share as global supply competition intensifies.
DEMAND SIGNALS FLASH UNSEASONAL SUMMER WEAKNESS
Recent data paints a bearish demand picture. U.S. crude inventories unexpectedly rose by 3.8 million barrels in the week ending 27/Jun, defying forecasts of a 3.5 million-barrel draw.
A build during peak summer signals weak consumption. Gasoline demand fell to 8.6 million bpd, while stockpiles surged by 4.2 million barrels exceeding expectations of a 0.7 million barrel build.
Source: EIA and Investing.com
Adding to concerns, the U.S. labour market showed signs of strain, with private payrolls unexpectedly dropping by 33,000 in June, according to the ADP report. Analysts had expected private payrolls to rise by 99,000. The soft employment data suggests broader economic weakness that could further dampen fuel use.
China offered a rare positive note, with its Caixin Manufacturing PMI returning to expansion (above 50) in June on stronger orders and output. However, the rebound is unlikely to meaningfully shift the global demand narrative.
WTI TECHNICALS SIGNAL SUSTAINED BEARISH MOMENTUM
As prices retreated from five-month highs post-ceasefire, technical signals turned bearish, a death cross formed on 02/Jul as the 21-day DMA crossed the 9-day DMA, reinforcing downside momentum.
Meanwhile, uncertainty over potential U.S. tariffs after the 09/Jul (Wed) deadline continues to cloud trade and demand outlooks.
Prices slipped below the 150-day SMA on 24/Jun and have held beneath it since, reinforcing the bearish trend.
A bearish MACD and fading RSI underscore continued weakness in WTI prices.
HYPOTHETICAL TRADE SETUP
While the medium-term outlook for WTI remains bearish, the coming week could see heightened volatility driven by two key factors: OPEC+’s larger-than-expected production increase and the U.S. tariff decision due on 09/Jul (Wed).
Although the accelerated OPEC+ supply hikes are priced in, downward pressure on prices is likely to persist. Meanwhile, the U.S. tariff decision adds a layer of uncertainty; any escalation or renewal of tariffs could weigh further on oil prices, while a rollback might offer temporary support.
Aside from another geopolitical shock, upside risks remain limited. In this context, a long straddle is a prudent strategy to capture potential sharp price swings in either direction.
Source: CME QuikStrike
This paper proposes a long straddle strategy using the Monday weekly WTI crude oil options expiring on 14/Jul (ML2N5), designed to benefit from heightened volatility regardless of price direction.
The position involves purchasing a USD 66.50/b call and a USD 66.50/b put, resulting in breakeven levels at USD 63.58/b and USD 69.42/b. The total cost of the trade is a net premium of USD 2.92/b, or USD 2,920 per contract.
The strategy offers unlimited upside potential if prices move beyond the breakeven levels, while the maximum loss is limited to the premium paid.
The accompanying chart, generated via CME Group’s QuikStrike Strategy Simulator, provides a detailed visualization of the strategy’s performance under various market scenarios.
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/cme.
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
WTI SOARED ON CONFLICT, SANK JUST AS FAST ON CEASEFIRE
June saw heightened volatility in WTI crude prices, driven by a short-lived conflict between Israel and Iran. Prices surged from USD 68/b on 12/Jun (one day before Israel struck Iran) to a five-month high of USD 78.40/b on 23/Jun, following the U.S. strike on three Iranian nuclear facilities.
Fears of a potential closure of the Strait of Hormuz, a critical chokepoint for ~20% of global oil flows, amplified the rally.
However, prices swiftly retreated as a ceasefire was announced within 24 hours. The rapid de-escalation erased most of the geopolitical risk premium, pushing crude back toward pre-conflict levels. Implied volatility and skew also dropped.
Source: CME CVOL
While flare-ups like Iran halting cooperation with the U.N. nuclear watchdog on 02/Jul (Wed) briefly lifted WTI prices but a surprise U.S. inventory build quickly capped the gains.
Overall, June’s rally was driven by geopolitical shocks, not sustained fundamentals. Oversupply concerns remain dominant.
OPEC+ ACCELERATES OUTPUT RESTORATION EVEN AS DEMAND WORRIES LOOM
With geopolitical tensions easing, market attention has shifted back to supply-demand fundamentals. Global oil demand remains sluggish, heightening concerns of a potential oversupply, especially as OPEC+ continues to unwind its production cuts.
On 05/Jul (Sat), eight key members of the OPEC+ alliance—Saudi Arabia, Russia, the UAE, Iraq, Kuwait, Kazakhstan, Algeria, and Oman met virtually and agreed to raise oil output in August. Instead of the anticipated 411,000 bpd increase, the group opted for a steeper hike of 548,000 bpd.
OPEC+ has been curbing output since 2022 to support prices. However, the alliance began reversing course this year to regain market share, amid rising competition from non-OPEC producers and pressure from Washington to help ease fuel prices.
This group began unwinding the voluntary cut of 2.2 million bpd in April. The original plan was to gradually increase production by 137,000 bpd each month through September 2026. Yet, after only one month at that pace, the group accelerated the process, tripling the monthly hike to 411,000 bpd for May, June, and July.
As of August, OPEC+ will have restored 1.92 million bpd of the 2.2 million bpd initially cut, leaving just 280,000 bpd to be brought back.
Following years of output cuts to stabilize prices, OPEC+ is now focused on expanding its market share as global supply competition intensifies.
DEMAND SIGNALS FLASH UNSEASONAL SUMMER WEAKNESS
Recent data paints a bearish demand picture. U.S. crude inventories unexpectedly rose by 3.8 million barrels in the week ending 27/Jun, defying forecasts of a 3.5 million-barrel draw.
A build during peak summer signals weak consumption. Gasoline demand fell to 8.6 million bpd, while stockpiles surged by 4.2 million barrels exceeding expectations of a 0.7 million barrel build.
Source: EIA and Investing.com
Adding to concerns, the U.S. labour market showed signs of strain, with private payrolls unexpectedly dropping by 33,000 in June, according to the ADP report. Analysts had expected private payrolls to rise by 99,000. The soft employment data suggests broader economic weakness that could further dampen fuel use.
China offered a rare positive note, with its Caixin Manufacturing PMI returning to expansion (above 50) in June on stronger orders and output. However, the rebound is unlikely to meaningfully shift the global demand narrative.
WTI TECHNICALS SIGNAL SUSTAINED BEARISH MOMENTUM
As prices retreated from five-month highs post-ceasefire, technical signals turned bearish, a death cross formed on 02/Jul as the 21-day DMA crossed the 9-day DMA, reinforcing downside momentum.
Meanwhile, uncertainty over potential U.S. tariffs after the 09/Jul (Wed) deadline continues to cloud trade and demand outlooks.
Prices slipped below the 150-day SMA on 24/Jun and have held beneath it since, reinforcing the bearish trend.
A bearish MACD and fading RSI underscore continued weakness in WTI prices.
HYPOTHETICAL TRADE SETUP
While the medium-term outlook for WTI remains bearish, the coming week could see heightened volatility driven by two key factors: OPEC+’s larger-than-expected production increase and the U.S. tariff decision due on 09/Jul (Wed).
Although the accelerated OPEC+ supply hikes are priced in, downward pressure on prices is likely to persist. Meanwhile, the U.S. tariff decision adds a layer of uncertainty; any escalation or renewal of tariffs could weigh further on oil prices, while a rollback might offer temporary support.
Aside from another geopolitical shock, upside risks remain limited. In this context, a long straddle is a prudent strategy to capture potential sharp price swings in either direction.
Source: CME QuikStrike
This paper proposes a long straddle strategy using the Monday weekly WTI crude oil options expiring on 14/Jul (ML2N5), designed to benefit from heightened volatility regardless of price direction.
The position involves purchasing a USD 66.50/b call and a USD 66.50/b put, resulting in breakeven levels at USD 63.58/b and USD 69.42/b. The total cost of the trade is a net premium of USD 2.92/b, or USD 2,920 per contract.
The strategy offers unlimited upside potential if prices move beyond the breakeven levels, while the maximum loss is limited to the premium paid.
The accompanying chart, generated via CME Group’s QuikStrike Strategy Simulator, provides a detailed visualization of the strategy’s performance under various market scenarios.
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/cme.
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Full Disclaimer - linktr.ee/mintfinance
Feragatname
Bilgiler ve yayınlar, TradingView tarafından sağlanan veya onaylanan finansal, yatırım, işlem veya diğer türden tavsiye veya tavsiyeler anlamına gelmez ve teşkil etmez. Kullanım Şartları'nda daha fazlasını okuyun.
Full Disclaimer - linktr.ee/mintfinance
Feragatname
Bilgiler ve yayınlar, TradingView tarafından sağlanan veya onaylanan finansal, yatırım, işlem veya diğer türden tavsiye veya tavsiyeler anlamına gelmez ve teşkil etmez. Kullanım Şartları'nda daha fazlasını okuyun.