Possible Easing of Geopolitical Risks Weighs on Crude Prices

January WTI crude oil (CLF26) on Tuesday closed down -0.68 (-1.15%), and January RBOB gasoline (RBF26) closed down -0.00386 (-2.07%).

Crude oil and gasoline prices settled lower on Tuesday in hopes of an end to the Russian-Ukrainian war as the key parties trade various peace plans.  An end to the war could allow restrictions on Russian energy exports to be removed, boosting global oil supplies.

However, crude oil has support after Interfax on Tuesday reported that Russian President Putin threatened to attack ships from nations helping Ukraine if attacks on Russian vessels don’t stop.   Over the past week, four Russian tankers have been attacked by drones in the Black Sea.  Also, Ukrainian drone and missile attacks over the weekend damaged a Russian Baltic Sea oil terminal, forcing it to close.  The Caspian Pipeline Consortium, which carries 1.6 million bpd of Kazakhstan’s crude exports, was forced to close after a pipeline was damaged at one of its moorings.

Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least 7 days rose +12% w/w to 124.64 million bbls in the week ended November 28, the highest level in almost 2.5 years.

Last month, OPEC revised its Q3 global oil market estimates from a deficit to a surplus, as US production exceeded expectations and OPEC also ramped up crude output.  OPEC said it now sees a 500,000 bpd surplus in global oil markets in Q3, versus last month’s estimate for a -400,000 bpd deficit.  Also, the EIA raised its 2025 US crude production estimate to 13.59 million bpd from 13.53 million bpd last month.

Venezuelan geopolitical risks are supporting crude prices after President Trump said airspace over Venezuela should be considered closed.   Venezuela is the world’s 12th-largest oil producer.

Reduced crude exports from Russia are underpinning crude prices.  On November 19, Vortexa data showed Russia’s oil product shipments fell to 1.7 million bpd in the first 15 days of November, the lowest in more than 3 years.  Ukraine has targeted at least 28 Russian refineries over the past three months, exacerbating a fuel crunch in Russia and limiting Russia’s crude export capabilities.  Ukraine knocked out 13% to 20% of Russia’s refining capacity by the end of October, curtailing production by as much as 1.1 million bpd.  New US and EU sanctions on Russian oil companies, infrastructure, and tankers have also curbed Russian oil exports.

Crude also garnered support after OPEC+ on Sunday said it will stick with plans to pause production increases during Q1 of 2026.

OPEC+ at its November 2 meeting announced that members will raise production by +137,000 bpd in December but will then pause the production hikes in Q1-2026 due to the emerging global oil surplus.  The IEA in mid-October forecasted a record global oil surplus of 4.0 million bpd for 2026.  OPEC+ is trying to restore all of the 2.2 million bpd production cut it made in early 2024, but still has another 1.2 million bpd of production left to restore.  OPEC’s October crude production rose by +50,000 bpd to 29.07 million bpd, the highest in 2.5 years.

The consensus is for Wednesday’s weekly EIA crude inventories to fall by -2.0 million bbl, and gasoline supplies to increase by +1.0 million bbl.

Last Wednesday’s EIA report showed that (1) US crude oil inventories as of November 21 were -3.8% below the seasonal 5-year average, (2) gasoline inventories were -3.3% below the seasonal 5-year average, and (3) distillate inventories were -6.9% below the 5-year seasonal average.  US crude oil production in the week ending November 21 fell -0.1% w/w to 13.814 million bpd, falling further back from the record high of 13.862 million bpd from the week of November 7.

Baker Hughes reported last Wednesday that the number of active US oil rigs in the week ending November 28 fell by -12  to a 4-year low of 407 rigs.  Over the past 2.5 years, the number of US oil rigs has fallen sharply from the 5.5-year high of 627 rigs reported in December 2022.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com