## Peace Talks Send Crude Oil Tumbling; Multiple Headwinds Pressure Energy Markets

Energy commodities experienced a substantial pullback Friday as negotiation signals between Ukraine and Russia sparked risk-off sentiment across markets. February WTI crude contract (CLG26) retreated -1.61 points to close -2.76%, while February RBOB gasoline (RBG26) slipped -0.0467 or -2.66%. The weakness centered on diplomatic developments, with Ukrainian President Zelensky announcing plans to meet President Trump Sunday in Florida to advance a proposed peace framework reportedly 90% complete, contingent on negotiations with Washington, Moscow, and European stakeholders.

However, not all drivers pushed prices lower. Several factors continued supporting crude valuations despite the geopolitical thaw. The US military intensified counter-terrorism operations in Nigeria—an OPEC member—through coordinated strikes against ISIS targets, part of broader efforts against regional insurgency. Additionally, Washington maintained its maritime blockade against sanctioned tankers facilitating Venezuelan crude exports. The Coast Guard forced the sanctioned vessel Bella 1 to abandon its approach to Venezuelan waters and reverse course into the Atlantic, with US naval assets maintaining surveillance as part of the Trump administration's containment strategy.

**Supply Constraints Provide Floor for Prices**

Production disruptions continue shaping the commodity landscape. Ukrainian forces have conducted sustained drone and missile campaigns targeting approximately 28 Russian refining facilities over the past quarter, significantly constraining export capacity. Maritime attacks have intensified as well, with at least six tankers struck in Baltic waters since November's conclusion. These offensive operations, combined with expanded US and EU sanctions targeting Russian petroleum infrastructure and transport vessels, have meaningfully constrained energy supplies flowing from major producers.

OPEC+ reinforced its cautious stance on November 30, confirming plans to pause production expansion throughout Q1 2026. While the cartel authorized a modest +137,000 bpd monthly increase for December, subsequent quarters will see a freeze as global crude demand softens. The group continues working through a 1.2 million bpd restoration goal from earlier production cuts, while the International Energy Agency forecasts an unprecedented 4.0 million bpd surplus materializing in 2026.

**Inventory and Production Data Show Mixed Signals**

Latest EIA statistics reveal inventory positions remain tighter than seasonal norms. As of December 12, crude stocks registered -4.0% below the 5-year average, gasoline supplies were -0.4% below average, and distillate inventories sat -5.7% beneath seasonal expectations. US crude output declined marginally at -0.1% week-over-week to 13.843 million bpd, though remaining near November's record of 13.862 million bpd. The EIA upgraded its 2025 production estimate to 13.59 million bpd.

Meanwhile, Baker Hughes data showed active US oil rig counts climbing three units to 409 in the week ending December 26, though remaining severely depressed relative to the December 2022 peak of 627 rigs. On tanker storage metrics, stationary crude inventories—vessels idle for seven or more days—declined 7% week-over-week to 107.15 million barrels through December 19, suggesting improved demand absorption.

OPEC's November production output slipped by 10,000 bpd to 29.09 million bpd. The organization also revised its third-quarter outlook, shifting from previously forecasted deficits to projected surpluses as American crude output exceeded expectations. The cartel now estimates a 500,000 bpd global market surplus versus prior month's projected deficit.