WTI Oil Commentary

Weekly data will be released at 15:30 GMT on Wednesday by the EIA (Energy Information Administration) for crude oil and gasoline stocks change. Last Wednesday saw a surprise decrease in Oil stocks of -4.203 million barrels. A decrease in stocks is seen as a reduction or a slower supply capacity and may be bullish for price, and Wednesday saw oil moved to a what is now a recent high at $48.85. An increase in this number is seen as an increase in supply and may be bearish for price. 

Market perception still sees overall supply very high as there continue to be new findings of oil fields and drilling operators are becoming more efficient and lowering extraction costs. WTI started the week yesterday on a low closing down at $45.29 from Friday’s close of $46.78, indicating new lows may continue to develop. Tomorrow’s data is forecast at -1 million barrels and although a negative number it shows signs of increased supply. If the number released is much higher than expected it may send the market lower, if the number is lower than expected (more negative) it may send the market higher.

Overall the market for Oil still looks depressed and the downward trend, apart from slight corrections, seems to be well in place. The options market also indicates oil is more likely to fall in 2015 (according to Reuters). 

Trading WTI OIL

If you think the EIA's data tomorrow will be higher than expected and Oil prices will continue trending down this week, to take advantage of lower prices you may buy a Put, which gives you the right to sell Oil at a determined price within a set period. When trading on ORE’s Web-Platform, from the add new position page chose WTI OIL under pair, under type select Put, choose an expiry date and under ‘amount’ chose how many barrels you want to sell.

For example, you may choose to sell 100 barrels at the predetermined price of $45 until Friday as displayed in the trade image below. This Put option will cost you a premium of 33.13 USD, this is also your maximum risk in the trade. 



If the price of oil falls below $45 by Friday the Put option will gain in value and you may profit. If oil does not fall then a limited loss will be made and you cannot be stopped-out of the position.

On the other hand if you think Oil is set for a correction in price and will rebound to higher prices over the next week, to take advantage of this you may buy a Call which gives you the right to buy Oil at a determined price over a set period. 

For example, you may choose to buy 100 barrels at the predetermined price of $46.50 until Friday as displayed in the image below. This Call option will cost you a premium of 50.19 USD, this is also your maximum risk in the trade. 

If the price of oil rises above $46.50, the Call option will gain in value and you may make a profit. If Oil does not rise then a limited loss will be made and you cannot be stopped-out of the position.