Crude Oil Prices Rally on no Breakthrough to end the Ukraine War

February WTI crude oil (CLG26) today is up +1.43 (+2.52%), and February RBOB gasoline (RBG26) is up +0.0337 (+1.97%).

Crude oil prices are moving sharply higher today after weekend talks to end the Ukraine-Russian war failed to yield a breakthrough.  Also, hopes of stronger Chinese energy demand are lifting crude prices after the Chinese government pledged support to sustain economic growth next year.

The EIA said today it has delayed the release of its weekly inventory report, initially expected today, with no time given for publication.  The data for the week ended December 19 was already delayed due to the Christmas holiday.

Strength in Chinese crude demand is supportive for prices.  According to data from Kpler, China’s crude imports this month are set to increase by 10% m/m to a record 12.2 million bpd as it rebuilds its crude inventories.

Oil prices also have support after the US last Thursday launched strikes on ISIS targets in Nigeria in a security and intelligence collaboration with the Nigerian government to combat rising terrorist attacks in the country.  Nigeria is an OPEC member.  Mr. Trump previously warned that the US would strike ISIS in Nigeria if the group did not stop killing Christians.

Oil prices have support from the US blockade of sanctioned oil tankers involved with Venezuelan oil shipments.  The US Coast Guard forced the sanctioned oil tanker Bella 1 to turn away from Venezuela and head out into the Atlantic Ocean last week, according to a Bloomberg report.  US forces have been shadowing the vessel as part of President Trump’s blockade.  US forces wanted to board Bella 1 near Barbados on Sunday, but the ship instead moved back out into the Atlantic Ocean.

Vortexa reported today that crude oil stored on tankers that have been stationary for at least 7 days rose +15% w/w to 129.33 million bbl in the week ended December 26.

Ukrainian drone and missile attacks have targeted at least 28 Russian refineries over the past four months, limiting Russia’s crude oil export capabilities and reducing global oil supplies.  Also, since the end of November, Ukraine has ramped up attacks on Russian tankers, with at least six tankers attacked by drones and missiles in the Baltic Sea.  In addition, new US and EU sanctions on Russian oil companies, infrastructure, and tankers have curbed Russian oil exports.

Crude also garnered support after OPEC+ on November 30 said it would stick to its plan to pause production increases in Q1 of 2026.  OPEC+ at its November 2 meeting announced that members would 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.

The December 17 EIA report showed that (1) US crude oil inventories as of December 12 were -4.0% below the seasonal 5-year average, (2) gasoline inventories were -0.4% below the seasonal 5-year average, and (3) distillate inventories were -5.7% below the 5-year seasonal average.  US crude oil production in the week ending December 12 fell -0.1% w/w to 13.843 million bpd, just below the record high of 13.862 million bpd from the week of November 7.

Baker Hughes reported last Tuesday that the number of active US oil rigs in the week ended December 26 rose by +3 rigs to 409 rigs, recovering slightly from the 4.25-year low of 406 rigs posted in the week ended December 19.  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.