Key Takeaways
- Crude oil and gasoline futures experienced pre-weekend selling pressure following recent gains.
- New U.S. and EU sanctions on Russian energy companies and infrastructure could impact global oil supply.
- Market sentiment is influenced by concerns over a potential global oil surplus and U.S. inventory levels.
- Geopolitical events and production adjustments by OPEC+ and individual nations are key price drivers.
Market Overview
December WTI crude oil futures (CLZ25) saw a slight decrease of -0.29% (-0.47%) on Friday. Similarly, December RBOB gasoline futures (RBZ25) closed down -0.0043% (-0.23%). This pre-weekend decline followed a period of sharp gains observed on Wednesday and Thursday.
The recent price rally in crude oil was largely attributed to the intensification of sanctions by the U.S. and the European Union targeting Russian energy and energy infrastructure. These measures heightened expectations of potential disruptions to Russian crude production and exports, which could significantly affect global oil supply.
Impact of New Sanctions
The Trump administration announced sanctions against Rosneft PJSC and Lukoil PJSC, two of Russia’s largest oil producers, citing a lack of commitment to peace negotiations for the Ukraine war. These sanctions may restrict foreign companies from doing business with these entities and limit their access to international financial systems.
In parallel, the EU implemented a new sanctions package targeting Russia’s energy infrastructure. This included sanctioning 117 additional shadow-fleet vessels and 45 entities involved in helping Russia circumvent existing sanctions, with 12 of these entities located in China and Hong Kong. The EU also imposed a transaction ban on Rosneft and Gazprom Neft.
💡 Crude oil futures experienced some support from the Trump administration’s earlier announcement regarding plans to replenish the Strategic Petroleum Reserve (SPR) by 1 million barrels in December and January.
Supply Glut and Inventory Concerns
A significant bearish factor for crude oil prices remains the concern over a global supply glut. The International Energy Agency (IEA) recently forecast a record global oil surplus of 4.0 million barrels per day for 2026.
📍 Conversely, a decrease in crude oil stored on tankers offers bullish support for oil prices. Vortexa reported that crude oil held on stationary tankers for at least seven days fell by 12% week-over-week to 78.44 million barrels in the week ending October 17.
📊 U.S. crude oil inventories as of October 17 were 4.0% below the five-year seasonal average, while gasoline inventories were 0.6% below, and distillate inventories were 6.6% below the five-year seasonal average, according to Wednesday’s EIA report.
OPEC+ and Geopolitical Influences
Crude prices found support following the OPEC+ meeting on October 5. The group agreed to a modest increase in its crude production target by 137,000 barrels per day starting in November, which was lower than market expectations of a potential 500,000 barrels per day boost.
OPEC+ is currently working towards reversing earlier production cuts totaling 2.2 million barrels per day from early 2024. OPEC’s crude production in September rose by 400,000 barrels per day to 29.05 million barrels per day, marking a 2.5-year high.
⚡ Reduced crude exports from Russia are also supportive of oil prices, largely due to Ukrainian attacks on at least 28 Russian refineries over the past two months. These drone and missile strikes have exacerbated a fuel crunch within Russia and limited its crude export capabilities. Russia’s total seaborne fuel shipments in the first ten days of October averaged 1.88 million barrels per day, the lowest in over 3.25 years.
Regional Production Outlook
The outlook for increased crude production in Iraq is poised to boost global oil supplies, which could be a bearish signal for crude prices. Iraq recently announced an agreement with the Kurdistan regional government to resume oil exports from the Kurdish region through a pipeline to Turkey. These exports had been halted for two years due to a payment dispute.
⚡ Iraqi Foreign Minister Hussein indicated that the resumption of these crude exports could add 500,000 barrels per day of new oil supply to global markets.
U.S. Production and Rig Count
U.S. crude oil production in the week ending October 17 saw a slight decrease of 0.1% week-over-week, falling to 13.629 million barrels per day. This came after reaching a record high of 13.636 million barrels per day in the week of October 10.
📌 Baker Hughes reported on Friday that the number of active U.S. oil rigs increased by 2 to 420 rigs in the week ending October 24. This figure remains modestly above the four-year low of 410 rigs reported in August.
⚡ Over the past two and a half years, the number of U.S. oil rigs has significantly declined from a 5.5-year high of 627 rigs recorded in December 2022.
Final Thoughts
The oil market is navigating a complex landscape influenced by geopolitical tensions, new sanctions on Russian energy, and shifting global supply dynamics. While sanctions and production increases by OPEC+ are key factors, concerns over a widening supply surplus and evolving U.S. production levels continue to shape market sentiment.