Weak Energy Demand Outlook Continues to Undercut Oil Markets

Global crude oil markets faced fresh headwinds on Monday as mounting concerns about weakening energy consumption took center stage. January WTI crude futures retreated -0.62 points (-1.08%), while January RBOB gasoline slipped -0.0198 (-1.13%). Both benchmarks hit multi-month lows—crude dropping to its lowest point in 1.75 months and gasoline posting a 4.75-year nearest-futures low.

China’s Economic Slowdown Signals Reduced Oil Appetite

The primary pressure undermining crude prices stems from disappointing Chinese economic indicators. Industrial production expanded just +4.8% year-over-year in November, falling short of October’s +4.9% and missing forecasts for +5.0% growth. More concerning, retail sales growth decelerated to +1.3% year-over-year, trailing expectations of +2.9% and marking the slowest pace in 2.75 years. These figures suggest dampened energy consumption from the world’s second-largest economy, eroding optimism for near-term oil demand recovery.

Financial markets reinforced this bearish sentiment as the S&P 500 declined to 2-week lows, signaling broader economic uncertainty that weighs heavily on energy demand outlooks.

Geopolitical De-Escalation Adds to Downside Pressure

Peace negotiations between the US and Ukraine showed signs of progress, with Ukrainian President Zelenskiy characterizing recent talks as “very constructive.” While diplomatically favorable, a potential ceasefire threatens to ease geopolitical risk premiums embedded in oil prices. Lifting sanctions on Russian energy exports—a likely outcome of peace talks—would increase global crude supply and further undercut pricing.

Refining Economics Deteriorate

The crude crack spread, which measures refining profitability, fell to a 2.25-month low, discouraging refiners from purchasing crude barrels. Simultaneously, crude stored on stationary tankers rose +5.1 week-over-week to 120.23 million barrels as of December 12, reflecting weak refining demand and sluggish market conditions.

Venezuelan Supply Risks Offer Modest Support

Geopolitical tensions in Venezuela, the world’s 12th-largest crude producer, provided some counterbalance. US naval forces intercepted and seized a sanctioned oil tanker off Venezuela’s coast last Wednesday, with reports indicating additional interdictions are being prepared. These seizures complicate Venezuela’s export logistics, as shipping companies grow hesitant to handle Venezuelan cargoes, potentially tightening supplies from this already-troubled producer.

Russian Output Constraints Sustain Floor Under Prices

Reduced Russian crude exports continue supporting prices amid ongoing pressures. Vortexa data from November 19 showed Russia’s oil product shipments fell to 1.7 million barrels per day—the lowest in over three years. Ukrainian drone and missile attacks on at least 28 Russian refineries over three months have created acute fuel shortages, hampering Russia’s export capabilities. Recent damage to a Baltic Sea oil terminal and forced closure of the Caspian Pipeline Consortium (which transports 1.6 million bpd of Kazakhstani crude) further constrain available supply. New US and EU sanctions targeting Russian oil infrastructure and tankers compound these limitations.

OPEC+ Holds Production Line

OPEC+ reinforced supply management by announcing on November 30 its intention to pause production increases through Q1 2026. After boosting output by +137,000 bpd in December, the group will maintain a pause to address emerging global oversupply. The International Energy Agency forecasted a record 4.0 million bpd global surplus for 2026. OPEC’s November production declined -10,000 bpd to 29.09 million bpd, while the group revised its Q3 outlook from a -400,000 bpd deficit to a +500,000 bpd surplus.

US Production Momentum Remains Robust

Despite wider market softness, American crude output posted resilience. The Energy Information Administration raised its 2025 US production forecast to 13.59 million bpd from 13.53 million bpd. Weekly output reached 13.853 million bpd as of December 5—just shy of the 13.862 million bpd record from early November. US oil inventories stood -4.3% below the 5-year seasonal average, with gasoline stockpiles -1.8% below normal and distillate reserves -7.7% below seasonal levels.

Active US oil rigs numbered 414 in the week ending December 12, modestly above November’s 4-year low of 407 rigs but sharply down from the 627-rig peak in December 2022, reflecting prolonged industry caution.