Fundamentals continue to drive crude markets amid persistent geopolitical noise
Crude markets entered the end of the year under renewed pressure, with WTI trading in the mid-$50s and posting a second consecutive weekly decline, briefly touching its lowest level since February 2021. While prices found intermittent support from geopolitical headlines, including disruptions tied to Russia’s shadow fleet and renewed US pressure on Venezuelan exports, those moves proved fleeting. Market sentiment continues to be dominated by expectations of a structural oversupply, with key agencies broadly anticipating excess barrels into 2026 and limited ability for geopolitical risks to materially tighten balances.
Recent developments underscore this dynamic. US actions targeting Venezuelan crude flows, including the blockade of sanctioned tankers, have raised the risk of localized logistical bottlenecks, particularly as Bloomberg reporting shows Venezuelan storage tanks filling rapidly. However, Venezuela accounts for less than 1% of global supply, and any sustained disruption would likely have a more concentrated impact on Chinese refiners rather than the broader global balance.
Similarly, renewed US sanctions pressure on Russia and Ukrainian attacks on Russian energy infrastructure have failed to produce lasting market responses, as Russian barrels continue to clear through alternative channels, often at steeper discounts.
The muted price response to recent geopolitical events reflects a market increasingly focused on persistent oversupply and rising inventories. According to the EIA, global crude production growth is expected to continue outpacing demand into 2026, driven primarily by non-OPEC supply. Outside of the US and Canada, Brazil, Guyana, and Argentina alone are forecast to add roughly 0.4 MMBbl/d of incremental crude supply next year, reinforcing the Americas as the dominant source of growth. At the same time, the EIA’s December STEO raised estimates of OPEC crude production capacity by roughly 0.2–0.4 MMBbl/d across 2024–26, alongside a similar increase in surplus capacity, reflecting a refined focus on effective production capacity, barrels that can be brought online within 90 days and sustained. With voluntary OPEC+ cuts excluded from disruptions, the updated framework underscores that OPEC retains meaningful spare capacity, further limiting the durability of geopolitical risk premiums.
Meanwhile, forward-looking balances remain decisively bearish, with the EIA forecasting global stock builds exceeding 2 MMBbl/d in 2026, pushing inventories above the upper end of historical ranges. As inventories accumulate, storage economics could start playing a larger role in shaping market structure, encouraging wider contango, weakening prompt fundamentals, and reducing sensitivity to geopolitical headlines unless they result in sustained production losses.
AEGIS remains bearish on crude markets. The market has demonstrated a growing tendency to fade geopolitical risk in the absence of measurable, durable supply losses, while structural oversupply and rising inventories continue to dominate price formation. With non-OPEC supply growth resilient, OPEC spare capacity ample, and global stock builds expected to persist into 2026, we see limited scope for sustained upside. Geopolitical events may continue to drive episodic volatility, but absent a material disruption to production, we expect fundamentals to keep crude markets under pressure and price responses to remain short-lived.
Crude Oil Factors
Geopolitical Risk Premium. (Bullish, Slightly Priced In)The US has escalated pressure on Venezuela by tightening enforcement against sanctioned oil shipments, while warning of additional sanctions on Russian energy exports if Moscow fails to reach a peace deal with Ukraine.
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 draw of -1,812 MBbls in U.S. crude-oil inventories. The draw was smaller than the average estimate of -2,155 as reported by Bloomberg. Inventories for the U.S. are now at a surplus of 3.30 MMBbls (0.8%) to last year, and a deficit of 17.90 MMBbls (-4.0%) 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 influenced the broader market backdrop after lowering its benchmark lending rate by 25 basis points to a range 3.5-3.75%. The move was widely expected and may slightly ease financial conditions while putting some downward pressure on the dollar, which is typically supportive for crude. Even so, the oil market remains driven by fundamentals.
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 latest Short-Term Energy Outlook from the EIA reinforces a bearish outlook. The agency now expects WTI to average $50.93/Bbl in early 2026 as inventories continue to rise and global liquids production consistently outpaces demand. The EIA projects stock builds above 2 MMBbl/d next year, driven primarily by non-OPEC producers such as the United States, Brazil, Guyana, and Canada, along with additional barrels from OPEC+ as previously paused production returns to the market. Demand growth remains positive but moderate and is concentrated mainly in non-OECD Asia.
Trump/Iran/Venezuela. (Bullish, Slight Surprise) The United States seized a sanctioned supertanker off the coast of Venezuela and expanded sanctions on individuals and vessels linked to the Maduro government. These actions are meant to disrupt revenue channels and tighten enforcement around Venezuelan crude exports. They add friction to outbound flows and increase operational risk for shippers, but the market does not expect a broad or lasting disruption to overall supply. As a result, these developments have not provided meaningful support for crude prices.
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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