Dollar Strength and Stock Market Weakness Undercut Crude Oil Prices

January WTI crude oil (CLF26) on Friday closed down -0.16 (-0.28%), and January RBOB gasoline (RBF26) closed down -0.0077 (-0.44%).

Crude oil and gasoline prices moved lower on Friday, with gasoline posting a 4.75-year nearest-futures low.  Friday’s dollar strength weighed on energy prices.  Also, Friday’s stock weakness has dampened optimism about the economic outlook, a negative factor for energy demand and crude prices.  In addition, concerns about a global oil glut continue to pressure crude prices.  

Concerns about a global oil supply cut are bearish for prices after global commodities trader Trafigura said Tuesday that the global oil market is headed for a “super glut” next year as a wave of new supply runs up against sluggish energy demand.

Weakness in the crude crack spread is a negative factor for oil prices.  The crack spread fell to a 2.25-month low on Friday, discouraging refiners from purchasing crude oil and refining it into gasoline and distillates.

Ramped-up geopolitical risks in Venezuela, the world’s 12th largest crude producer, are supportive for crude prices after US forces intercepted and seized a sanctioned oil tanker off the coast of Venezuela on Wednesday.  Reuters reported on Thursday that the US is preparing to intercept more sanctioned tankers transporting Venezuelan oil.  The seizures may make it more difficult for Venezuela to export its oil, as other shippers are now likely to be more reluctant to load cargoes from Venezuela.

Geopolitical risks from the Russian-Ukrainian war are supporting crude prices.  Last Tuesday, Interfax reported that Russian President Putin threatened to attack ships from nations helping Ukraine if attacks on Russian vessels don’t stop.   Recently, five Russian tankers have been attacked by drones in the Black Sea.

Reduced crude exports from Russia are underpinning crude prices.  On November 19, Vortexa data showed Russia’s oil product shipments fell to 1.7 million bpd in the first 15 days of November, the lowest in more than 3 years.  Ukraine has targeted at least 28 Russian refineries over the past three months, exacerbating a fuel crunch in Russia and limiting Russia’s crude export capabilities.    Ukrainian drone and missile attacks recently damaged a Russian Baltic Sea oil terminal, forcing it to close.  The Caspian Pipeline Consortium, which carries 1.6 million bpd of Kazakhstan’s crude exports, was forced to close after a pipeline was damaged at one of its moorings.  New US and EU sanctions on Russian oil companies, infrastructure, and tankers have also curbed Russian oil exports.

Crude also garnered support after OPEC+ on November 30 said it would stick to plans to pause production increases in Q1 of 2026.  OPEC+ at its November 2 meeting announced that members will raise production by +137,000 bpd in December but will then pause the production hikes in Q1-2026 due to the emerging global oil surplus.  The IEA in mid-October forecasted a record global oil surplus of 4.0 million bpd for 2026.  OPEC+ is trying to restore all of the 2.2 million bpd production cut it made in early 2024, but still has another 1.2 million bpd of production left to restore.  OPEC’s November crude production fell by -10,000 bpd to 29.09 million bpd.

Last month, OPEC revised its Q3 global oil market estimates from a deficit to a surplus, as US production exceeded expectations and OPEC also ramped up crude output.  OPEC said it now sees a 500,000 bpd surplus in global oil markets in Q3, versus the previous month’s estimate for a -400,000 bpd deficit.  Also, the EIA raised its 2025 US crude production estimate to 13.59 million bpd from 13.53 million bpd last month.

Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least 7 days fell -7.9 w/w to 121.23 million bbls in the week ended December 5.

Wednesday’s EIA report showed that (1) US crude oil inventories as of December 5 were -4.3% below the seasonal 5-year average, (2) gasoline inventories were -1.8% below the seasonal 5-year average, and (3) distillate inventories were -7.7% below the 5-year seasonal average.  US crude oil production in the week ending December 5 rose +0.3% w/w to 13.853 million bpd, just below the record high of 13.862 million bpd from the week of November 7.

Baker Hughes reported Friday that the number of active US oil rigs in the week ending December 12 rose by +1 to 414 rigs, modestly above the 4-year low of 407 rigs reported on November 28.  Over the past 2.5 years, the number of US oil rigs has fallen sharply from the 5.5-year high of 627 rigs reported in December 2022.

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