WTI, now trading on the January prompt contract, settled lower this week as geopolitical developments weighed on sentiment. Crude ended Friday at $58.06, down from $60.09 the previous Friday.
Prices tested monthly lows amid ample global supply and increasing speculation of a potential Ukraine–Russia peace agreement. Traders are evaluating the likelihood of a deal that could further add barrels to an already saturated market. Although Ukraine and several European allies rejected key elements of the proposed terms, markets appear to be pricing in some probability of an agreement.
The U.S. has reportedly pressured Kyiv to accept the proposal—viewed by many as skewed favorably toward Russia—threatening to withdraw support if they do not. Former President Donald Trump stated he would maintain recently enacted sanctions on Russia (effective Friday the 21st) even as discussions continue. Those sanctions have likely been one of the few supportive factors for crude prices recently. According to Bloomberg, roughly 48 million barrels of Russian crude are currently stranded on tankers with no clear destination due to U.S. restrictions.
The prospect of a peace deal threatens to reverse that tightening effect. If sanctions are relaxed or workarounds are permitted, those displaced barrels could re-enter a market already oversupplied.
Current forward curve levels present a difficult hedging environment for producers. Many clients remain undecided on whether to further de-risk at current prices.
We continue to view downside risk as more significant than upside through 2026. Previously, our largest bullish risk factor was meaningful disruption to Russian supply—which has technically occurred—but it resulted in only a marginal price uplift. Initially, some Russian barrels became commercially unavailable as buyers (e.g., India) explored alternatives; however, historical precedent suggests those volumes typically find a home eventually.
These latest developments—where the U.S. appears to be encouraging Ukraine to accept a peace deal—pose additional risk that sanctioned barrels could return to market. If an agreement is reached, or even if negotiations show meaningful progress, expect crude prices to move lower.
Crude Oil Factors
Geopolitical Risk Premium. (Bullish, Slightly Priced In) In the Black Sea, a Ukrainian drone attack temporarily halted Russian exports from the key port of Novorossiysk, disrupting flows. Meanwhile, in the Gulf of Oman, Iranian forces seized a Marshall Islands-flagged tanker, further stoking concerns over the security of vital shipping lanes. These developments injected additional volatility and support into the market.
Speculator Positioning (Bearish, Priced In) The latest CFTC data show that as of August 12, money managers reduced their net long in CME’s flagship NYMEX WTI contract to just 48,865 contracts, the smallest bullish position since April 2009. Meanwhile, trades of WTI done on the ICE exchange show money managers holding a net short of about 53,000 contracts. When the two venues are combined, overall positioning in WTI has slipped into net short territory for the first time on record.
Oil/Product Inventories. (Bullish, Priced In) The EIA reported a build of +5,202 MBbls in U.S. crude-oil inventories. In contrast, the market expected a draw of -247 MBbls as reported by Bloomberg. Inventories for the U.S. are now at a deficit of 5.90 MMBbls (-1.4%) to last year, and a deficit of 21.70 MMBbls (-4.9%) to the five-year average.
OPEC+ Quotas. (Bullish, Priced In) On June 2, OPEC+ announced its extension of 3.66 MMBbl/d cuts through December 2025. Additionally, the 2.2 MMBbl/d voluntary cuts from eight member countries will continue into Q3 2024 but will start to be reversed in October at a rate of 0.18 MMBbl/d per month. OPEC+ members agreed on September 5 to delay a planned gradual 2.2 MMBbl/d supply hike by two months, shifting the start to December. The group will add 0.19 MMBbl/d in December and 0.21 MMBbl/d from January onwards, with an option to adjust or pause these hikes depending on market conditions. The cartel also reaffirmed its compensation cuts of 0.2 MMBbl/d per month through November 2025, as members such as Iraq, Russia, and Kazakhstan have struggled to meet their original production quotas.
AEGIS notes that the global crude market would quickly build inventories without OPEC's support in reducing supply.
OPEC Unwind. (Bearish, Mostly Priced in) OPEC+ agreed to restore 137 MBbl/d for December, in line with the increases scheduled for October and November. Additionally, the group announced a pause in output hikes for Q1, citing typically weaker seasonal demand. Delegates noted the January pause reflects expectations of a seasonal slowdown.
China Demand. (Bearish, Priced In) China’s onshore crude inventories declined to 1.17 billion barrels this week, down from a record 1.20 billion barrels in mid-August, according to data from Kayrros. The draws came from commercial stockpiles, partially reversing the country’s earlier stockpiling surge, a key factor that has supported global oil prices even as the broader market faces record oversupply.
USD (Bearish, Priced In) The Federal Reserve cut its benchmark interest rate by 25 basis points, the first cut since December 2024, and signaled that another 50 basis point cut could be coming by then end of 2025. If markets expect rate cuts or looser monetary conditions, the dollar tends to weaken. Oil is priced in dollars, so a weaker dollar lowers the “real” cost of oil for buyers using other currencies.
Ukraine-Russia Resolution. (Bearish, Surprise) Ukrainian President Volodymyr Zelensky said he agreed to work on a peace plan drafted by the US and Russia aimed at ending the war in Ukraine. A peace deal, if followed by the elimination of sanctions on Russian oil over its invasion of Ukraine, could unleash supply from the world's third largest producer.
Trade War. (Bearish, Mostly Priced In) There has been an increase in tit-for-tat trade tension between the US and China, with China sanctioning the US unit of Hanwha Ocean Co., a South Korean shipping major, and warned of additional retaliatory actions against the industry. However, President Trump said high tariffs on China were “not viable,” suggesting potential for de-escalation even as broader tensions remain elevated.
Projected Oversupply. (Bearish, Mostly Surprise) The EIA’s November STEO underscores the increasingly bearish fundamentals for crude. The agency now expects global oil supplies to increase by 2.8 MMBbl/d in 2025 and by another 1.4 MMBbl/d in 2026, driven by robust growth from the US, Brazil, Guyana, and Canada, alongside the revival of OPEC+ production. As a result, the global supply surplus is projected to reach 2.17 MMBbl/d in 2026, up from last month’s estimate, and inventories are expected to build sharply, especially in OECD countries.
Trump/Iran/Venezuela. (Bullish, Slight Surprise) Tensions in South America are escalating as reports surfaced stating the US is looking to target Venezuelan military sites. According to OPEC secondary sources, Venezuela's crude production in September was 967 MBbl/d.
Russian Supply. (Bullish, Slight Surprise) Russian crude benchmarks have fallen to their lowest level in >2.5 years according to data from Argus Media, reflecting sanctions pressure. Meanwhile, crude on water hits another record ahead of Russian sanction deadline, with roughly 1.4 BBbls of crude on water were either en route or in floating storage last week, according to data from Vortexa.
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