Key Takeaways
- Crude oil and gasoline futures saw minor declines amidst concerns over a growing crude oil surplus.
- An increase in stored crude oil on stationary tankers signals potential supply gluts.
- OPEC+ is expected to continue with planned production increases, aligning with market expectations.
- Geopolitical events, including trade deal optimism and Ukrainian strikes on Russian refineries, provided early support but were overshadowed by supply concerns.
- New U.S. and E.U. sanctions on Russian energy entities aim to curb Russian oil revenue and exports.
Market Performance and Supply Glut Concerns
December WTI crude oil (CLZ25) closed down by 0.19 (-0.31%), while December RBOB gasoline (RBZ25) saw a slight decrease of 0.0026 (-0.14%) on Monday. Crude oil prices retreated from earlier gains, primarily due to persistent concerns about a global crude oil surplus. Data from Vortexa indicated that crude oil stored on tankers stationary for at least seven days rose by 12% week-over-week to 89.75 million barrels in the week ending October 24.
OPEC+ Production Outlook
Bloomberg reported that OPEC+ would likely focus on a base case of a third monthly oil production increase of 137,000 barrels per day for December during its upcoming weekend meeting. This aligns with market consensus. OPEC+ is currently in the process of raising output by an additional 1.66 million barrels per day, aiming to fully reverse the 2.2 million barrels per day production cut implemented in early 2024. OPEC’s crude production in September increased by 400,000 barrels per day to 29.05 million barrels per day, marking its highest level in 2.5 years.
Geopolitical Influences on Oil Prices
Initially, crude oil prices found support on Monday due to economic optimism stemming from news of a preliminary U.S.-China trade agreement. Additionally, Ukrainian President Zelensky’s statement regarding Ukraine’s intent to expand military strikes on refineries deep within Russia provided a temporary boost to oil prices.
Sanctions and Their Impact on Russian Energy Exports
The market also continues to be influenced by the increased U.S. and E.U. sanctions on Russian energy and related infrastructure announced last week. The Trump administration imposed sanctions on Rosneft PJSC and Lukoil PJSC, Russia’s largest oil producers, citing Russia’s lack of commitment to peace in Ukraine. Concurrently, the European Union adopted a transaction ban on Rosneft and Gazprom Nef, alongside sanctioning 117 additional shadow-fleet vessels and 45 entities facilitating Russia’s evasion of sanctions, including twelve companies based in China and Hong Kong.
IEA Forecasts Global Oil Surplus
📊 Concerns surrounding a global supply glut remain a significant bearish factor for crude oil prices. The International Energy Agency (IEA) recently projected a record global oil surplus of 4.0 million barrels per day for 2026.
Russian Production and Export Disruptions
⚡ Conversely, reduced crude oil exports from Russia offer support to oil prices. Ukraine has targeted at least 28 Russian refineries in the past two months, contributing to a fuel crunch within Russia and limiting its crude export capabilities. Ukrainian drone and missile attacks on Russian refineries and oil export terminals resulted in Russia’s total seaborne fuel shipments averaging 1.88 million barrels per day in the first ten days of October, the lowest average in over 3.25 years.
U.S. Inventory and Production Data
📊 According to the EIA report from last Wednesday, U.S. crude oil inventories as of October 17 were 4.0% below the five-year seasonal average. Gasoline inventories were 0.6% below the five-year seasonal average, and distillate inventories were 6.6% below the five-year seasonal average. U.S. crude oil production in the week ending October 17 decreased by 0.1% week-over-week to 13.629 million barrels per day, slightly down from the record high of 13.636 million barrels per day recorded in the week of October 10.
U.S. Oil Rig Count Analysis
📍 Baker Hughes reported on Friday that the number of active U.S. oil rigs in the week ending October 24 increased by 2 to 420 rigs. This figure is slightly above the four-year low of 410 rigs reported in early August. Over the past 2.5 years, the U.S. oil rig count has substantially decreased from a 5.5-year high of 627 rigs reported in December 2022.
Expert Summary
The crude oil market is currently balancing concerns over a growing global supply surplus against geopolitical developments impacting Russian exports. While OPEC+ is expected to continue its planned production increases, and U.S. inventories remain below seasonal averages, the outlook is tempered by the potential for oversupply and the ongoing impact of sanctions and conflict.