Geopolitical Tensions Undercut Oil Market Rally Despite Supply Constraints

Price Movement and Market Drivers

WTI crude for January delivery declined by 0.21 points, representing a 0.35% pullback, while January RBOB gasoline retreated 0.00195 points or 1.04%. The modest downward pressure stems primarily from US dollar strength, but market participants are closely monitoring peace negotiations between Russia and Ukraine—developments that could significantly reshape the energy landscape if hostilities cease and export restrictions lift.

Supply Disruptions Supporting Price Floor

The crude market finds support from mounting supply challenges across multiple fronts. Russian President Putin warned of military retaliation against vessels assisting Ukraine following repeated drone attacks on tanker fleets in the Black Sea. Over the past seven days, four Russian oil carriers sustained damage from drone strikes, while Ukrainian forces dealt a strategic blow to Russian energy infrastructure by attacking a Baltic Sea terminal facility, forcing temporary closure.

The Caspian Pipeline Consortium faced operational constraints after damage to infrastructure at one of its key facility nodes, threatening the 1.6 million bpd export corridor for Kazakhstan’s crude output.

Tanker Storage Signals Market Pressure

Vortexa data revealed concerning trends in crude storage patterns. The volume of crude held on stationary tankers—idle for at least 7 days—climbed 12% week-over-week to reach 124.64 million barrels as of November 28, marking the highest accumulation in nearly 2.5 years. This buildup suggests producers are struggling to move inventory, reflecting broader market oversupply concerns.

OPEC Adjusts Forecasts on Production Surplus

A significant policy shift emerged when OPEC revised its Q3 2024 outlook, flipping from an anticipated deficit to a surplus position. The cartel now projects a 500,000 bpd surplus for Q3, a stark reversal from last month’s -400,000 bpd deficit estimate. The recalibration reflects higher-than-expected US output and accelerating OPEC member production.

The US Energy Information Administration raised its 2025 crude production forecast to 13.59 million bpd from the previous 13.53 million bpd estimate, signaling sustained American output strength.

Production Cuts Under Review

In a cautious move, OPEC+ confirmed Sunday that it will postpone planned production increases throughout Q1 2026, maintaining current output levels to manage the emerging global surplus. Though OPEC+ approved a 137,000 bpd bump for December, members will halt further hikes next quarter. The organization continues efforts to reinstate 2.2 million bpd of the production cuts implemented in early 2024, with 1.2 million bpd remaining to be restored.

October production from OPEC members expanded by 50,000 bpd to 29.07 million bpd—the highest reading in 2.5 years—demonstrating the cartel’s capacity to sustain elevated output even as it deliberates on future supply strategy.

Russian Export Capabilities Constrained

Separate from conflict-related disruptions, structural challenges continue limiting Russian export potential. Data from November 19 showed Russian oil product shipments contracted to 1.7 million bpd during the first half of November—the lowest pace in over three years. Ukraine’s campaign targeting Russian refining infrastructure has been devastating: strikes on at least 28 facilities over three months have degraded capacity by 13% to 20%, equivalent to roughly 1.1 million bpd of lost processing capability by late October.

Fresh US and EU sanctions targeting Russian oil firms, facilities, and shipping vessels have compounded export headwinds.

Inventory Dynamics and Production Adjustments

The EIA’s most recent weekly report highlighted tightening inventory conditions across the energy complex. As of November 21, US crude stockpiles sat 3.8% beneath the five-year seasonal average, while gasoline reserves trailed by 3.3% and distillate inventories lagged by 6.9%. These undersupply conditions typically support price floors during demand seasons.

US crude production in the week ending November 21 contracted 0.1% week-over-week to 13.814 million bpd, retreating from the record 13.862 million bpd achieved the prior week. Active US oil rigs declined sharply to 407 units as of November 28—a four-year low and a substantial retreat from the 627 rigs operating at the 5.5-year peak in December 2022.

Geopolitical Premium Resurfaces

Venezuela’s potential export disruptions have re-emerged as a risk factor after Trump administration statements regarding airspace restrictions. As the world’s 12th-largest oil producer, any material change in Venezuelan export flows could inject additional volatility into global markets already managing multiple supply shocks.

Forward Outlook

The crude complex faces competing narratives: peace developments could release Russian supply, while ongoing military operations, sanctions, and infrastructure damage sustain production challenges. With OPEC+ maintaining output discipline through early 2026 and US inventories running lean, the market’s direction hinges increasingly on geopolitical developments and whether global surplus forecasts materialize as projected.