Oil Prices Slide Amid Strong Dollar and Political Tension

February WTI crude oil (CLG25) declined by -0.22 (-0.32%) on Monday, while February RBOB gasoline (RBG25) fell by -0.37 (-0.19%).

Stronger Dollar and Political Uncertainty Weigh on Prices

Crude oil prices faced pressure due to a stronger dollar and rising global political uncertainty. President-Elect Trump threatened to take control of the Panama Canal unless transit rates were reduced, adding to his recent tariff threats aimed at Canada, Mexico, and the EU. This situation raises concerns of a potential tariff war affecting the world oil market.

Government Shutdown Averted, Supporting Oil Demand

On a brighter note, Congress successfully avoided a US government shutdown by passing a short-term spending bill last Friday, which could have negatively impacted GDP growth and energy demand.

OPEC+ and Production Updates Provide Some Support

Support for crude oil prices came from Kazakhstan’s recent commitment to adhere to OPEC+ quotas, deciding against an increase in oil production by 190,000 bpd next year. The prospect of new sanctions on Iranian and Russian crude exports could further limit global oil supplies, providing a bullish outlook for prices. Mike Walz, Trump’s national security adviser pick, pledged a return to “maximum pressure” on Iran, while the Biden administration is exploring new sanctions against Russian crude oil.

Decrease in Tanker Crude and OPEC+ Adjustments

A decline in crude oil on stationary tankers supports prices. Vortexa reported a -9.9% week-over-week decrease in crude oil stored on such tankers, totaling 65.28 million bbl for the week ending December 13. Earlier this month, OPEC+ also pushed back its planned increase of crude production by +180,000 bpd from January to April, slowing down the unwinding of production cuts. The UAE announced a delay in its planned 300,000 bpd increase, extending OPEC+’s timeline to restore a total of 2.2 million bpd of output until September 2026.

Geopolitical Tensions Prolong Oil Price Support

Escalating tensions from the Ukraine-Russia conflict continue to support crude prices, especially after Russia launched a hypersonic missile into Dnipro last month. With Western missile support for Ukraine and recent warnings from President Putin regarding potential strikes on Ukrainian “decision-making centers,” the situation remains precarious.

Weakened Demand in China and Decline in Russian Exports

Contrarily, China’s weakened crude demand remains a bearish factor for prices. Bloomberg data indicates a -2.14% year-over-year decline in China’s November oil demand, totaling 14.013 million bpd, and a -3.26% drop for January-November compared to last year. Alongside this, Russian crude exports decreased by -170,000 bpd to 2.97 million bpd in the week leading up to December 15, which supports the crude market.

EIA Report Highlights Supply Levels and Production Trends

The recent EIA report indicated US crude oil inventories were -5.9% below the seasonal 5-year average as of December 13. Gasoline and distillate inventories were also lower by -3.3% and -7.0%, respectively. US crude oil production slightly dipped by -0.2% week-over-week to 13.604 million bpd, down from the previous week’s record of 13.631 million bpd. Additionally, Baker Hughes data reported an increase in active US oil rigs by +1 rig to 483 as of December 20, recovering from the 2-3/4 year low of 477 rigs last month. It is important to note that the number of US oil rigs has decreased from the 4-1/2 year high of 627 rigs recorded in December 2022.

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