Geopolitical Tensions and Market Jitters Converge to Drag Crude Lower

When you chart the stock market’s recent hiccup against crude oil’s downward trajectory, you’re essentially looking at a cartoon version of how interconnected global markets have become. Last Friday’s energy selloff wasn’t just about one variable—it was a perfect storm of conflicting signals that left crude oil dancing to an uncertain beat.

The Twin Headwinds: Dollar and Equities

January WTI crude oil futures closed Friday at -0.16 (-0.28%), while January RBOB gasoline dipped -0.0077 (-0.44%), with the latter posting a 4.75-year low for nearest-contract futures. The primary culprit? A stronger US dollar paired with equity market weakness. When stocks stumble, investors typically worry about economic slowdown, which naturally dampens expectations for energy demand. Add a resilient greenback into the mix, and you’ve got a one-two punch that leaves crude exporters with thinner profit margins—a bearish setup for oil prices.

The Supply Glut Shadow

Underneath the surface lies a more structural concern: global oil oversupply. Trafigura, a major commodities trading player, warned this week that the world faces a “super glut” scenario in the coming year as new production capacity comes online while energy consumption remains tepid. This isn’t just short-term noise—it’s reshaping the entire outlook for crude. Meanwhile, the crude crack spread (the profit margin between crude prices and refined products) has deteriorated to a 2.25-month low, discouraging refiners from aggressively purchasing crude, further pressuring prices downward.

Geopolitical Wildcard: Venezuela and Russia

Yet crude has found some support from unexpected quarters. The US interdiction of sanctioned Venezuelan oil tankers on Wednesday, with reports of more seizures on the horizon, complicates Caracas’ export logistics. As shippers grow wary of loading Venezuelan cargoes, the world’s 12th largest producer faces an increasingly difficult path to maintain export volumes.

The Russia-Ukraine conflict continues to inject volatility. After Russian President Putin threatened retaliation against nations assisting Ukraine (following a string of drone attacks on Russian tankers in the Black Sea), crude traders took note. Ukraine’s aggressive targeting of Russian refineries—at least 28 in the past three months—has severely hampered Russia’s fuel production and export capacity. Recent drone strikes even forced a Baltic Sea oil terminal to suspend operations. The Caspian Pipeline Consortium, which handles 1.6 million bpd of Kazakh crude, was also damaged and temporarily shut down. New US and EU sanctions on Russian oil infrastructure have added another layer of export constraints.

OPEC+ Pumps the Brakes

On November 30, OPEC+ reaffirmed its decision to pause production increases through Q1 2026. The cartel had previously announced a +137,000 bpd December boost before freezing hikes next quarter due to the emerging surplus. The IEA forecasted a record global oil surplus of 4.0 million bpd for 2026, forcing OPEC+ to slow its restoration of earlier production cuts—1.2 million bpd still remains to be brought back online.

Data Snapshot: Supply Dynamics

November saw OPEC crude output slip by -10,000 bpd to 29.09 million bpd. Notably, OPEC revised its Q3 global oil balance from deficit to surplus, citing stronger-than-expected US output and OPEC’s own ramped-up production. The organization now estimates a 500,000 bpd surplus for Q3, flipping from a projected -400,000 bpd deficit. The EIA bumped its 2025 US crude production forecast to 13.59 million bpd (from 13.53 million bpd previously), while US crude output in the week ending December 5 rose +0.3% to 13.853 million bpd—just shy of the 13.862 million bpd record from early November.

Floating storage metrics signal persistent oversupply pressures: Vortexa reported stationary tanker crude fell -7.9 week-over-week to 121.23 million barrels as of December 5. Meanwhile, EIA inventory data revealed US crude stockpiles were -4.3% below the seasonal 5-year average, gasoline was -1.8% below average, and distillates came in -7.7% below normal levels. Active US oil rigs ticked up by +1 to 414 in the week ending December 12, though this remains well below the 627-rig peak from December 2022.

The stock market’s cartoonish swings between optimism and pessimism continue to shape how traders position in energy, and until that mood stabilizes, crude will likely remain caught between geopolitical support and fundamental oversupply concerns.