Crude Oil Prices Decrease due to Strong Dollar and Worries about Oil Oversupply

January WTI crude oil (CLF26) is down by -0.32 (-0.56%), while January RBOB gasoline (RBF26) closed lower at -0.0118 (-0.67%). Crude oil and gasoline prices are experiencing a decline today, with gasoline hitting its lowest level in nearly five years for nearest-futures. The strength of the US dollar is currently putting downward pressure on energy prices. Furthermore, weaker stock markets have dampened optimism about the economic outlook, which negatively impacts energy demand and crude oil prices. Concerns over a potential global oil surplus continue to weigh on crude prices as well.

Global oil market worries have intensified, as commodities trader Trafigura warned earlier this week that a "super glut" is expected in 2026. This surplus would stem from an influx of new oil supplies clashing with weak global energy demand. Additionally, the drop in the crude crack spread, now at a two-and-a-half-month low, is discouraging refiners from purchasing crude oil to refine it into gasoline and distillates.

Geopolitical tensions are also influencing oil prices. A rise in political instability in Venezuela, the worlds 12th largest crude producer, has offered some support to prices. Recently, US authorities intercepted a sanctioned oil tanker off Venezuelas coast, and more such seizures are expected, making it harder for Venezuela to export its oil. Other shippers are likely to be more cautious about transporting oil from the country.

The ongoing conflict between Russia and Ukraine is another factor keeping oil prices elevated. Reports indicate that Russian President Vladimir Putin has threatened to target vessels from nations aiding Ukraine if attacks on Russian ships continue. Furthermore, the closure of Russian oil export infrastructure, such as the damaged Caspian Pipeline Consortium, is helping to maintain upward pressure on prices. Ukraines missile and drone attacks on Russian refineries have exacerbated the fuel shortage in Russia, further curtailing its crude oil export capacity.

Reduced Russian oil exports, especially in November, have also played a role. Data from Vortexa shows a significant decline in Russias oil product shipments, which dropped to 1.7 million bpd in the first half of November. In addition, new US and EU sanctions on Russian oil companies, infrastructure, and tankers have further restricted the countrys oil exports.

On the production side, OPEC+ has shown its support for crude prices by announcing on November 30 that it would maintain its decision to pause production increases in the first quarter of 2026. OPEC+ has already started to raise output slightly in December, with a 137,000 bpd increase, but the overall plan is to hold off on further hikes due to the anticipated global oil surplus. The International Energy Agency (IEA) had previously forecasted a record global oil surplus of 4 million bpd for 2026.

OPECs production fell slightly in November, down by 10,000 bpd to 29.09 million bpd. Recently, OPEC revised its global oil market forecast for Q3 2025, shifting from a deficit to a surplus due to higher-than-expected US production and a rise in OPECs output. The Energy Information Administration (EIA) also revised its 2025 US crude production estimate upward to 13.59 million bpd from 13.53 million bpd in the previous report.

On the storage front, data from Vortexa revealed a 7.9% week-over-week decrease in crude oil stored on stationary tankers as of December 5, with a total of 121.23 million barrels. The EIA also reported a decline in US crude inventories, which were 4.3% below the five-year average as of December 5. Gasoline and distillate inventories were also lower than seasonal averages, at -1.8% and -7.7%, respectively. In terms of production, US crude output in the week ending December 5 rose by 0.3% to 13.853 million bpd, just shy of its recent record high of 13.862 million bpd.

The number of active oil rigs in the US saw a slight recovery, rising by six to 413 rigs in the week ending December 5, after hitting a four-year low of 407 rigs on November 28. Over the past two and a half years, the number of US oil rigs has decreased significantly from its peak of 627 rigs in December 2022.