Back to Top

Since the March spike, WTI has coiled into an ascending triangle: sellers have held 93.6 twice while buyers keep lifting the floor. That combination usually resolves higher, and clearing 93.6 would open the way toward 100. Losing the rising floor would say the pressure has eased.

Crude and diesel have come apart. ULSD is back at its April high while WTI sits 27% below its own, and the refining margin between them has widened sharply. Crude has cushions that diesel does not – extra barrels from record U.S. output and the reserve release do nothing to add refining capacity, while Russia's export ban keeps product off the market. The shortage has moved out of the barrel and into the refinery.

Nikkei has fallen 17.4% from its late-June record, and the August rebound recovered two thirds of that ground before failing well short of the high. That leaves a clear lower high and a market now testing the floor of its bounce. Losing 65,000 would put the August low back in play.

Wheat has quietly ended a three-year bear market. After falling almost half from its 2023 high, it has now broken above the lower highs the downtrend produced and is approaching the psychological 700 level again. If the momentum persists and price can hold above there, further highs should come into view.

  Back to Top

The Strait of Hormuz enters its sixth month of effective closure, and the last formal framework for reopening has now expired. The 60-day memorandum agreed in June lapsed on August 17. Washington declined to renew it and warned Oman, the mediator, against interfering. On August 19, it escalated instead: President Trump announced economic warfare on Iran, with sweeping secondary sanctions aimed at oil smuggling, ship registries, front companies and swap lines, and put any country that offers Iran a financial or logistical lifeline on notice of consequences of its own. For crude, that threat matters more than the sanctions list: It targets the buyers, and the shipping channels that have kept barrels moving. WTI sits near $85, a third higher than a year ago.

For a market with its main artery shut, that is a restrained price, and this month's forecasts explain why. Both agency reports were downgrades: OPEC cut its 2026 demand growth forecast to 580,000 barrels a day, a fourth consecutive reduction, while the IEA trimmed a further 510,000 to leave demand contracting outright by 1.6 million. Supply is the other side of the ledger, and it keeps surprising to the upside: The EIA now forecasts a record 13.8 million barrels a day of U.S. production for 2026, the most bullish of the eight monthly outlooks it has published this year and expects 14.15 million in 2027.

But the demand line is the wrong line to read. Demand is being destroyed; $85 crude and $4 gasoline are doing exactly what high prices do, and it still is not enough: The IEA cut supply harder, by 1.7 million barrels a day for the third quarter alone, and now projects a quarterly deficit of 1.8 million, more than double its estimate a month earlier. The American inventory build is also less than it appears. In the week to August 7, commercial crude rose 17.4 million barrels, the largest build of the run,  but the Strategic Petroleum Reserve fell 6.1 million over the same week. The tanks are filling partly because the reserve is being emptied, not because new supply is arriving. And the buffers have limited room left. The reserve now stands at 293.4 million barrels, its lowest since January 1982 and 41% of capacity.

OPEC+ has approved a final increase of 188,000 barrels a day for September, the last of the year, having unwound roughly all of the 3.5 million a day of cuts announced in 2023. Many members cannot reach their allocated quotas in any case, so the paper capacity overstates the real thing and the EIA sees OPEC spare capacity falling toward 600,000 by the end of 2027 against a historical norm above 3 million. Global stocks have drawn 410 million barrels since late February. Stocks are what stand between a deficit and a price spike, and once they are gone price is the only mechanism left to ration the shortfall. The product market is tighter still, with Russia's ban on gasoline and diesel exports now running to the end of January 2027 and U.S. drivers paying $4.05 a gallon for gasoline and $5.45 a gallon for diesel, the latter up 47% in a year.

None of this stays inside the energy complex. Higher fuel costs feed straight into inflation, and that is a large part of why the 30-year Treasury yield printed 5.31% on August 17, its highest in 19 years and up from 4.63% before the war. A doubling of the Treasury's long-dated buybacks on August 19 knocked 10 basis points off the long bond, but the purchases do not begin until September 9 and must be funded by borrowing elsewhere. For equities the consequence is mechanical. A technology index is a portfolio of cash flows that mostly arrive years from now; discount them at 5.2% rather than 4.63% and their present value shrinks, however well the businesses are trading. That is why the Nasdaq-100 stalled at 30,000 and turned lower on the discount rate rather than on earnings.

The same repricing makes this a global story, and nowhere more so than Tokyo, where an index as technology-heavy as the U.S. meets a central bank moving the other way. Japan is importing the U.S. rate shock and amplifying it: The 10-year JGB yield has climbed to a 30-year high on fiscal anxiety over proposed consumption-tax cuts and mounting conviction that the Bank of Japan raises again in September, while $85 oil is a direct levy on a country that imports nearly all of it. The advance now being unwound was built on the opposite conditions. The Nikkei 225 doubled between early 2025 and June's record of 73,007, carried by the cheapest money in the developed world and an unbroken bid for anything semiconductor-adjacent, and both of those supports are reversing at once. What the index has not yet done is break the trend that produced the advance, and that is the distinction worth watching. Until it does, this could still be a dip in a rising market rather than the start of a real top.

Both halves of this issue come back to the same number. The oil deficit is what has the long bond at a 19-year high, and the long bond is what is repricing Tokyo. Neither link needs a fresh shock – only that the buffers keep thinning, and the yield keeps holding.

  Back to Top

We conclude with the following hypothetical trades:¹

Case study 1: Long WTI Crude Oil futures

If we hold a bullish view on crude amid a supply deficit that demand destruction has so far failed to close, we will consider taking a long position in WTI Crude Oil (CL) futures at the current price of 84.4, with a stop-loss below 80, a hypothetical maximum loss of 84.4 − 80 = 4.4 points, or $4,400 per contract. If the buffers continue to thin and price is left to ration the shortfall, CL futures have the potential to advance toward 94, resulting in a hypothetical gain of 94 − 84.4 = 9.6 points, or $9,600 per contract. Each $0.01 move in CL futures is worth $10, and each full dollar $1,000, given the 1,000-barrel contract size. Micro WTI Crude Oil (MCL) futures, at 100 barrels, offer the same directional exposure with reduced capital outlay.

Case study 2: Short Nikkei 225 (USD) futures

If we hold a bearish view on Japanese equities amid a rising global discount rate and a tightening Bank of Japan, we will consider taking a short position in Nikkei 225 (USD) futures (NKD) at the current level of 66,200, with a stop-loss above 67,500, just beyond the halfway mark of the August rebound, for a hypothetical maximum loss of 67,500 − 66,200 = 1,300 index points, or $6,500 per contract. If the yield pressure resumes, NKD has the potential to decline toward 63,000, resulting in a hypothetical gain of 66,200 − 63,000 = 3,200 index points, or $16,000 per contract. Each full index point in the Nikkei 225 (USD) contract is worth $5, with a minimum tick of 5 index points, or $25. Micro Nikkei (USD) futures (MNK), at $0.50 per index point, offer the same directional exposure with reduced capital outlay; the Nikkei 225 (Yen) (NIY) contract, at ¥500 per index point, suits those who also wish to take a view on the currency.

  Back to Top

¹ Examples cited above are for illustration only and shall not be construed as investment recommendations or advice. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Please refer to full disclaimers at the end of the commentary.

This publication is provided by Inspirante Trading Solutions Pte Ltd ("ITS") for general information and educational purposes only. ITS is NOT licensed or regulated for the provision of investment or financial advice, and we do not seek to do so.

Any past performance, projection, forecast, or simulation of results is not necessarily indicative of the future or likely performance of any investment.

Any expression of opinion, which may be subject to change without notice, is personal to the author, and ITS makes no guarantee of any sort regarding the accuracy or completeness of any information or analysis supplied.

None of the information contained here constitutes an offer or solicitation of an offer to buy, sell or hold any currency, product, or financial instrument, to make or hold any investment, or to participate in any particular trading strategy.

ITS does not take into account your personal investment objectives, specific investment goals, specific needs, or financial situation and makes no representation and assumes no liability to the accuracy or completeness of the information provided here. Suitable advice should be obtained from a licensed financial advisor for this purpose. The information and publications are not intended to be and do not constitute financial advice, investment advice, trading advice, or any other advice or recommendation of any sort. 

ITS shall not be liable for any loss arising from any investment based on any perceived recommendation, forecast, or any other information contained here. The contents of these publications should not be construed as an express or implied promise, guarantee, or implication by ITS that the reader will profit or that losses in connection therewith can or will be limited from reliance on any information set out here.

This content has been produced by ITS. CME Group has not had any input into the content, and neither CME Group nor its affiliates shall be responsible or liable for the same. 

CME Group does not represent that any material or information contained herein is appropriate for use or permitted in any jurisdiction or country where such use or distribution would be contrary to any applicable law or regulation.

  Back to Top

  Back to Top