Peace Hopes Wipe Out Crude's Weekly Momentum as Multiple Headwinds Resurface

Energy markets confronted a reality check on Friday as crude oil and refined products surrendered earlier weekly gains. WTI crude for January delivery ([CLF26](closed -0.10 points (-0.17%), while January RBOB gasoline ([RBF26](dropped -0.0058 (-0.32%). The pullback erased nascent bullish positioning as traders reassessed conflicting fundamental signals.

Geopolitical De-Escalation Undermines Oil Support

The most immediate pressure stemmed from renewed diplomatic momentum on the Russia-Ukraine conflict. President Putin signaled receptiveness to Trump administration peace proposals, with US envoy Witkoff scheduled to meet Russian officials next week. Market participants immediately priced in potential sanctions relief on Russian energy, a scenario that would dramatically increase global crude supplies and weigh on valuations.

Initial strength came from currency weakness—the dollar index ([DXY00](fell to 1.5-week lows, typically supportive for dollar-denominated commodities. However, this technical tailwind evaporated once peace narrative dominated headlines.

Production Cuts Clash with Supply Realities

OPEC+ will hold virtual meetings this Sunday with expectations to maintain its previously announced production pause through Q1 2026. Yet underlying data increasingly complicates the cartel’s stance. OPEC’s October output reached 29.07 million bpd, marking a 2.5-year peak, while the group contemplates restoring the remaining 1.2 million bpd from its 2.2 million bpd 2024 reduction.

Meanwhile, Ukraine’s sustained campaign against Russian energy infrastructure continues reducing Moscow’s export capacity. Refineries targeted over three months now total at least 28 facilities, with Ukraine having eliminated 13-20% of Russian refining capability by October’s end—translating to roughly 1.1 million bpd in lost production.

Vortexa data confirmed Russian crude shipments fell to 1.7 million bpd during November’s first half, a 3+ year low despite fresh US and EU sanctions on Russian tanker fleets and energy companies further constraining logistics.

Demand-Side Turbulence and Inventory Shifts

The International Energy Agency had forecast a record 4.0 million bpd global surplus for 2026, a projection gaining credibility as US production exceeded forecasts. The EIA upgraded its 2025 crude output estimate to 13.59 million bpd from 13.53 million bpd, while refiners increasingly store excess barrels on stationary tankers—Vortexa reported these floating stockpiles surged +9.7% week-over-week to 114.31 million bbls, the highest since mid-2022.

US domestic inventories painted a more nuanced picture. As of November 21, crude stocks sat -3.8% below seasonal 5-year averages, gasoline inventories tracked -3.3% below normal, and distillate supplies lagged -6.9% below historical patterns. Yet production data showed cracks forming: US crude output fell -0.1% week-over-week to 13.814 million bpd, retreating from the November 7 record of 13.862 million bpd.

Rig Activity Signals Production Headwinds Ahead

Baker Hughes data underscored emerging supply concerns. Active US oil rigs contracted by -12 units to 407, marking a 4-year nadir. This represents a dramatic 220-rig decline from December 2022’s 5.5-year high of 627, suggesting current production gains face sustainability questions and future output growth may struggle to materialize.

Geopolitical Wildcards Remain

Offsetting some bearish pressure: escalating US military positioning near Venezuela, the world’s 12th-largest crude producer, maintains latent supply risk premium. Such uncertainty, combined with OPEC+ production dynamics and sanctions-driven Russian supply constraints, continues anchoring oil valuations despite Friday’s weakness.