Geopolitical Tensions Push Oil Markets Higher as Energy Supply Risks Escalate

Global crude oil markets surged midweek as mounting geopolitical tensions threaten to disrupt energy supplies on multiple fronts. January WTI crude oil futures closed +0.67 points (+1.21%), while January RBOB gasoline contracts gained +0.0134 (+0.80%), driven primarily by escalating risks in Venezuela and Russia.

Political Actions Tighten Energy Markets

The catalyst for Wednesday’s rally stemmed from decisive policy moves in Washington. President Trump initiated a comprehensive blockade targeting sanctioned oil tankers operating to and from Venezuela, signaling a hardline stance on Venezuelan crude exports. Simultaneously, the US administration is weighing additional sanctions on Russian energy exports, with particular focus on Russia’s shadow fleet of tankers and intermediaries facilitating oil sales. These measures signal that sanctions escalate if Moscow rejects proposed peace negotiations over Ukraine.

Supply Disruptions Amplify Market Concerns

Ukrainian military operations have intensified pressure on Russian energy infrastructure. Over the past quarter, drone and missile attacks have targeted at least 28 Russian refineries, constraining domestic fuel supplies and diminishing Russia’s export capacity. Meanwhile, existing US and EU sanctions continue throttling Russian crude shipments, reducing global supply availability and supporting prices.

Inventory Data Delivers Mixed Signals

Wednesday’s EIA report presented a complicated picture. Crude oil inventories declined by 1.27 million barrels—substantially smaller than the anticipated 2.05 million barrel draw. Conversely, gasoline supplies expanded by 4.81 million barrels, surpassing forecasts of 1.95 million barrels and reaching a four-month high. This unexpected inventory buildup temporarily pressured prices from their strongest levels. However, Cushing stockpiles—the delivery hub for WTI contracts—fell 742,000 barrels, providing modest support.

Current inventory positioning shows US crude oil supplies running 4.0% below the five-year seasonal average, gasoline 0.4% below average, and distillates 5.7% below normal seasonal levels, suggesting underlying tightness despite recent builds.

OPEC+ Production Strategy Stabilizes Outlook

OPEC+ reinforced commitment to its production adjustment schedule, announcing November 30 that members would maintain current output levels throughout Q1 2026. The cartel previously approved a modest 137,000 bpd increase for December before implementing the freeze. This measured approach reflects OPEC+'s acknowledgment of emerging global oil surplus conditions forecasted at 4.0 million bpd for 2026 by the International Energy Agency.

OPEC members produced 29.09 million bpd in November, down 10,000 bpd from October. The organization continues unwinding production cuts implemented in early 2024, retaining approximately 1.2 million bpd in reductions yet to be restored. OPEC recently revised its Q3 market assessments, shifting from deficit to surplus projections as US output exceeded expectations.

Refining Margins Constrain Demand

The crude crack spread—a key metric for refining profitability—deteriorated to six-month lows, reducing refiner incentives to purchase crude and process it into transportation fuels. Weakness in this spread represents a headwind for crude prices, limiting demand from refineries seeking feedstock.

US Production Dynamics

American crude output in the week ending December 12 totaled 13.843 million bpd, marginally below November 7’s record of 13.862 million bpd. The EIA upgraded its 2025 production forecast to 13.59 million bpd from 13.53 million bpd. Active US oil rig counts rose to 414 in the latest week, modestly above the four-year low of 407 recorded in late November, though dramatically down from the 627-rig peak achieved in December 2022.

Crude oil’s trajectory hinges on whether geopolitical supply constraints can offset demand weakness and mounting global inventories, with further policy escalations or production disruptions likely to remain price-supportive in near term.