WTI Sell-Off May Hide Deeper Supply Warning
The recent sell-off in West Texas Intermediate (WTI) crude oil futures has led to a decline of around 8% from its April peak, but analysts believe that this drop may be hiding a deeper supply warning.
According to physical market indicators, including backwardation and inventory draws, the market is tighter than the headline price action suggests. Backwardation occurs when near-term futures prices are higher than later-dated contracts, indicating that buyers are willing to pay a premium for immediate delivery.
The U.S. Energy Information Administration (EIA) reported a draw of 3.2 million barrels in the week ending June 6, 2025, while OPEC+ has been gradually unwinding its voluntary production cuts with less-than-expected actual increases in output. The EIA's Drilling Productivity Report projects that Permian Basin output will rise by only 30,000 bpd in July 2025, the smallest monthly gain in over a year.
As a result, some analysts predict that WTI prices may rebound to $80 per barrel or higher by the fourth quarter of 2025. This would translate into higher gasoline prices at the pump, affecting household budgets and potentially influencing inflation data.