Key Takeaways
- Crude oil and RBOB gasoline futures closed higher on Wednesday, driven by expectations of tighter global oil supplies.
- New sanctions on Russia and existing production disruptions continue to support oil prices.
- Weekly EIA data showed a significant, unexpected drop in crude oil inventories and record US crude production.
- Despite a record high in US crude output, lower gasoline and distillate stocks are tightening the product market.
- Geopolitical tensions and OPEC+ production decisions remain key factors influencing future oil prices.
Global Supply Concerns Drive Oil Prices Higher
December WTI crude oil futures (CL0) saw a modest increase, closing up +0.33 (+0.55%) on Wednesday. Similarly, December RBOB gasoline futures (RB0) finished the day higher, gaining +0.0273 (+1.47%).
The upward movement in crude oil prices appears to be fueled by an enhanced outlook for more constrained global oil supplies. This sentiment was bolstered by the anticipation that the Trump administration might actively enforce new oil sanctions on Russia, potentially prompting negotiations to resolve the conflict in Ukraine. Further impetus for crude prices came as weekly EIA crude inventories unexpectedly declined, and gasoline supplies reached an 11-month low. However, gains were tempered later in the day as the U.S. dollar strengthened.
Sanctions and Geopolitical Factors Influence the Market
Crude oil experienced a rally on Wednesday following statements from a U.S. representative to NATO indicating the intention to enforce existing sanctions on Russian energy. The Trump administration had previously announced sanctions on Rosneft PJSC and Lukoil PJSC, Russia’s major oil producers, citing a lack of commitment to peace talks for the Ukraine war. The European Union has also implemented measures, including a transaction ban on Rosneft and Gazprom Nef, and sanctioned additional vessels and entities involved in helping Russia circumvent sanctions, with several companies based in China and Hong Kong named.
In addition to sanctions, crude oil prices are benefiting from carryover support from Monday, stemming from news of a preliminary U.S.-China trade agreement, which is slated for ratification by leaders of both nations this Thursday.
Russian Production Disruptions and Reduced Exports
Reduced crude exports originating from Russia are providing significant support to oil prices. Ukraine has been targeting Russian refineries, impacting at least 28 sites over the past two months. These attacks have exacerbated fuel shortages within Russia and curtailed the country’s capacity to export crude oil. Ukrainian drone and missile strikes on Russian refineries and oil export terminals have led to a decrease in Russia’s total seaborne fuel shipments. Shipments averaged 1.88 million barrels per day in the first ten days of October, marking the lowest average in over three and a half years.
Vortexa reported data indicating a +12% week-over-week increase in crude oil stored on tankers that have been stationary for at least seven days, reaching 89.75 million barrels in the week ending October 24. Conversely, the International Energy Agency (IEA) projected a record global oil surplus of 4.0 million barrels per day for 2026 on October 14.
OPEC+ Production Levels and Market Expectations
Bloomberg reported that OPEC+ is likely to focus on a base case scenario of a third monthly oil production increase of 137,000 barrels per day for December during their upcoming meeting. This aligns with market consensus. The group is actively working to reverse earlier production cuts, with plans to boost output by an additional 1.66 million barrels per day, effectively reversing the 2.2 million barrels per day cut implemented in early 2024. OPEC’s crude production in September saw an increase of +400,000 barrels per day, reaching 29.05 million barrels per day, the highest level in two and a half years.
EIA Data Shows Mixed Signals for Oil Markets
Wednesday’s weekly EIA report presented a predominantly bullish picture for crude oil and its derivatives. EIA crude inventories unexpectedly fell by -6.86 million barrels, contrasting with expectations of a +1.2 million barrel build. Furthermore, EIA gasoline supplies dropped by -5.9 million barrels, reaching an 11-month low and exceeding the anticipated draw of -1.9 million barrels. EIA distillate stockpiles also decreased by -3.36 million barrels, a larger draw than the expected -1.9 million barrels.
On the bearish side, U.S. crude production for the week ending October 24 climbed to an all-time high of 13.644 million barrels per day. Additionally, crude supplies at Cushing, Oklahoma, a key delivery point for WTI futures, increased by +1.33 million barrels.
The EIA report from Wednesday also highlighted that U.S. crude oil inventories as of October 24 were 5.8% below the seasonal five-year average. Gasoline inventories were 2.7% below the seasonal five-year average, and distillate inventories were 8.4% below the five-year seasonal average. U.S. crude oil production in the week ending October 24 rose by 0.1% week-over-week to a record high of 13.655 million barrels per day.
Baker Hughes data released last Friday indicated an increase of +2 active U.S. oil rigs in the week ending October 24, bringing the total to 420 rigs. This number is slightly above the four-year low of 410 rigs recorded in early August. Over the past two and a half years, the number of active U.S. oil rigs has significantly decreased from a 5.5-year high of 627 rigs reported in December 2022.
Final Thoughts
The oil market is currently navigating a complex landscape influenced by geopolitical sanctions, supply disruptions, and record production levels. While sanctions and drawdowns in gasoline and distillate stocks are supportive, the surge in U.S. crude output presents a counterbalancing factor.