Geopolitics drive short-term volatility but global supply keeps the market heavy
Oil markets spent the week dominated by geopolitics as Ukraine peace talks stalled and US–Venezuela tensions escalated. While these headlines injected risk into the front of the curve, the underlying physical market still appears heavy as global supply growth continues to outpace demand.
Ukraine set a record pace of strikes on Russian energy infrastructure in November. An attack on the Kazakh Caspian Pipeline Consortium terminal caused significant damage and temporarily halted loading on one of its 800 MBbl/d moorings. Despite US pressure for a negotiated settlement, Moscow rejected key elements of the peace framework, and Ukrainian attacks have continued alongside intensified diplomatic activity.
Russian exports also faced growing logistical friction as US sanctions pushed more barrels into shadow-fleet channels. Strikes on refineries and export facilities have slowed transit and increased reliance on intermediaries, lifting Russian oil-on-water above 180 MMBbl.
At the same time, US–Venezuela tensions rose after President Trump warned that Venezuelan airspace should be considered closed and signaled that military action against cartel targets could occur soon. Venezuelan floating storage reached a three-year high, driven mostly by softer Chinese demand rather than meaningful disruptions to flows.
As barrels at sea accumulate, the market has added a modest geopolitical premium to the front of the curve. Even so, the broader takeaway remains unchanged. Physical balances remain loose, global supply continues to exceed demand, and long-dated prices show limited response despite persistent geopolitical noise.
OPEC reinforced this narrative by maintaining its plan to pause output increases in the first quarter. The group highlighted seasonal softness at a time when global supply growth remains steady, underscoring its cautious posture and the market’s underlying looseness.
The WTI CMA curve reflects these fundamentals. Bal 2025 holds a slight backwardation to 2026 and 2027 before gradually rising, signaling that traders view the geopolitical disruptions as near-term developments that do not materially alter the longer-term supply and demand outlook.
Geopolitics added brief volatility this week, but the market remains well supplied. Ukraine’s attacks, slower Russian exports, and US–Venezuela tensions created modest risk premiums, yet the forward curve still signals a loose balance into 2026. AEGIS maintains a bearish view with limited upside risk.
Crude Oil Factors
Geopolitical Risk Premium. (Bullish, Slightly Priced In) Ukraine set a record pace of strikes on Russian energy infrastructure in November. An attack on the Kazakh Caspian Pipeline Consortium terminal caused significant damage and temporarily halted loading on one of its 800 MBbl/d moorings. Despite US pressure for a negotiated settlement, Moscow rejected key elements of the peace framework, and Ukrainian attacks have continued alongside intensified diplomatic activity.
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) US–Venezuela tensions rose after President Trump warned that Venezuelan airspace should be considered closed and signaled that military action against cartel targets could occur soon. According to OPEC secondary sources, Venezuela's crude production in September was 967 MBbl/d.
Russian Supply. (Bullish, Slight Surprise) Russian exports also faced growing logistical friction as US sanctions pushed more barrels into shadow-fleet channels. Strikes on refineries and export facilities have slowed transit and increased reliance on intermediaries, lifting Russian oil-on-water above 180 MMBbl.
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