Crude Oil Tumbles as the Dollar Strengthens and Equities Fall

January WTI crude oil (CLF26) on Monday closed down -1.20 (-2.00%), and January RBOB gasoline (RBF26) closed down -0.0360 (-1.96%).

Crude oil and gasoline prices fell sharply on Monday, with gasoline posting a 1.5-week low.  Dollar strength on Monday undercut energy prices.  Crude prices also fell as Monday's stock market weakness weighed on confidence in the economic outlook and energy demand.  A positive for crude prices is the expectation that restrictions on Russian energy exports will remain, following Ukrainian President Zelenskiy's statement that there is no accord yet to end the Russian-Ukrainian war.  

On the bearish side for crude, Saudi Arabian state producer Aramco last Thursday cut the price of its Arab Light crude oil for Asian customers by 30 cents/bbl for January delivery, the lowest since January 2021, a sign of weakened energy demand.

Geopolitical risks 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, four Russian tankers have been attacked by drones in the Black Sea.  Also,  President Trump said airspace over Venezuela should be considered closed and that the US may soon start targeting drug cartels within Venezuela.   Venezuela is the world's 12th-largest oil producer.

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 over the weekend 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 Sunday said it will stick with plans to pause production increases during 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.

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.

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 last 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.

Last Wednesday's EIA report showed that (1) US crude oil inventories as of November 28 were -3.0% below the seasonal 5-year average, (2) gasoline inventories were -3.1% below the seasonal 5-year average, and (3) distillate inventories were -7.6% below the 5-year seasonal average.  US crude oil production in the week ending November 28 was unchanged w/w to 13.815 million bpd, slightly below the record high of 13.862 million bpd from the week of November 7.

Baker Hughes reported last Friday that the number of active US oil rigs in the week ending December 5 rose by +6 to 413 rigs, recovering from 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.