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.