Global Oil Supplies Poised to Overwhelm Markets as Peace Prospects Undercut Energy Prices

Energy markets experienced significant downward pressure on Tuesday as crude prices were undercut by mounting expectations that the Russia-Ukraine conflict could be moving toward resolution. January WTI crude futures fell -0.89 points (-1.51%), while January RBOB gasoline declined -0.0235 (-1.29%), both touching five-week lows as investors anticipated a potential lifting of sanctions on Russian energy exports.

Supply-Side Pressures Mount Amid Geopolitical Shifts

The prospect of normalized Russian crude flows represents a major headwind for oil markets already grappling with oversupply. Last week’s Vortexa data revealed Russia’s refined product exports had contracted to 1.7 million barrels per day during November’s first half—the lowest level in over three years—as Ukraine’s systematic targeting of at least 28 refineries has eliminated between 13% and 20% of Russia’s refining capacity. Current sanctions on Russian oil infrastructure and tankers have further constrained Moscow’s ability to maintain export volumes.

Meanwhile, stationary crude inventory on tankers climbed +9.7% week-over-week to 114.31 million barrels as of November 21, marking the highest accumulation in more than two years. This buildup underscores the broader market imbalance now emerging.

Demand Weakness Compounds the Downward Pressure

Tuesday’s disappointing US economic indicators reinforced bearish sentiment across energy markets. Retail sales growth lagged expectations at +0.2% month-over-month against a forecast of +0.4%, while private payroll additions fell to an average of -13,500 weekly over the prior four weeks. Consumer confidence deteriorated further, with the Conference Board’s November index dropping to 88.7—a seven-month low and substantially below the anticipated 93.3 reading.

A modest recovery in the US dollar provided limited support, preventing sharper crude losses.

OPEC Grapples with Persistent Oversupply

Supply realities have forced major production adjustments. OPEC+ approved only a modest +137,000 bpd increase for December before pausing all further hikes through Q1 2026, acknowledging the developing global surplus. The cartel now estimates a 500,000 bpd surplus in Q3, reversing last month’s projected deficit of -400,000 bpd as US output exceeded expectations.

OPEC’s combined October output rose +50,000 bpd to 29.07 million bpd—the strongest rate in 2.5 years—while the EIA lifted its 2025 US production forecast to 13.59 million bpd from 13.53 million bpd. Crude production in the week ending November 14 dipped marginally to 13.834 million bpd, down from the prior week’s record of 13.862 million bpd.

The International Energy Agency projects a record 4.0 million bpd global surplus for 2026, forcing OPEC+ to manage its exit from production cuts more cautiously. The cartel still has 1.2 million bpd of cuts to restore from the 2.2 million bpd reduction initiated in early 2024.

Inventory Levels Remain Below Historical Averages

Despite mounting surplus concerns, US crude inventory remains positioned defensively. As of November 14, crude stocks sat 5.0% below the five-year seasonal average, with gasoline supplies 3.7% below and distillates 6.9% lower than historical norms. Consensus expectations for Wednesday’s EIA update point to crude inventory declines of -2.36 million barrels alongside gasoline supply increases of +1.16 million barrels.

US oil rig activity has stabilized marginally, with active drilling equipment rising +2 units to 419 rigs in the week ending November 21. This remains well below the 627-rig peak logged in December 2022, reflecting the sector’s restrained investment posture. The current rig count hovers modestly above the four-year trough of 410 rigs set last August.

What’s Ahead

Broader geopolitical risks surrounding potential US military engagement in Venezuela—the world’s 12th-largest crude producer—continue to provide underlying price support. However, the combination of normalized Russian exports, persistent global oversupply, and weakened demand dynamics leaves the market structurally challenged heading into 2026.