WTI pressured by persistent oversupply despite rising Venezuela tensions
WTI crude traded near multi-month lows this week as the market continued to prioritize the widening structural surplus expected in 2026 over any short-lived geopolitical risks. Even as tensions escalate in Venezuela, the forward outlook remains dominated by concerns about persistent supply growth and softening global balances.
The latest Short-Term Energy Outlook from the EIA reinforces a bearish outlook. The agency now expects WTI to average $50.93/Bbl in early 2026 as inventories continue to rise and global liquids production consistently outpaces demand. The EIA projects stock builds above 2 MMBbl/d next year, driven primarily by non-OPEC producers such as the United States, Brazil, Guyana, and Canada, along with additional barrels from OPEC+ as previously paused production returns to the market. Demand growth remains positive but moderate and is concentrated mainly in non-OECD Asia.
The IEA reaches a similar conclusion and estimates that global supply will exceed demand by roughly 3.8 MMBbl/d. This represents a downward revision of about 230 MBbl/d from last month, driven largely by a pause in OPEC+ production quota increases. Even with that adjustment, demand growth remains modest and concentrated in non-OECD Asia. Taken together, both agencies present a unified message that the crude market is heading into a structural surplus, with fundamentals rather than geopolitics driving the price outlook for 2026.
Against this backdrop, tensions in South America are rising. The United States seized a sanctioned supertanker off the coast of Venezuela and expanded sanctions on individuals and vessels linked to the Maduro government. These actions are meant to disrupt revenue channels and tighten enforcement around Venezuelan crude exports. They add friction to outbound flows and increase operational risk for shippers, but the market does not expect a broad or lasting disruption to overall supply. As a result, these developments have not provided meaningful support for crude prices.
The Federal Reserve influenced the broader market backdrop after lowering its benchmark lending rate by 25 basis points to a range 3.5-3.75%. The move was widely expected and may slightly ease financial conditions while putting some downward pressure on the dollar, which is typically supportive for crude. Even so, the oil market remains driven by fundamentals. The expected supply glut heading into 2026 carries far more weight than a single quarter-point rate cut, and any potential macro boost from the Fed is only modest.
AEGIS maintains a bearish outlook. Rising inventories, steady non-OPEC supply growth, and only moderate demand expectations continue to outweigh geopolitical developments and the modest macro support provided by the Federal Reserve. With fundamentals firmly in control, crude remains anchored to a structurally looser balance heading into 2026.
Crude Oil Factors
Geopolitical Risk Premium. (Bullish, Slightly Priced In) Ukraine set a record pace of strikes on Russian energy infrastructure in November. An attack on the Kazakh Caspian Pipeline Consortium terminal caused significant damage and temporarily halted loading on one of its 800 MBbl/d moorings. Despite US pressure for a negotiated settlement, Moscow rejected key elements of the peace framework, and Ukrainian attacks have continued alongside intensified diplomatic activity.
Speculator Positioning (Bearish, Priced In) The latest CFTC data show that as of August 12, money managers reduced their net long in CME’s flagship NYMEX WTI contract to just 48,865 contracts, the smallest bullish position since April 2009. Meanwhile, trades of WTI done on the ICE exchange show money managers holding a net short of about 53,000 contracts. When the two venues are combined, overall positioning in WTI has slipped into net short territory for the first time on record.
Oil/Product Inventories. (Bullish, Priced In)The EIA reported a draw of -1,812 MBbls in U.S. crude-oil inventories. The draw was smaller than the average estimate of -2,155 as reported by Bloomberg. Inventories for the U.S. are now at a surplus of 3.30 MMBbls (0.8%) to last year, and a deficit of 17.90 MMBbls (-4.0%) to the five-year average.
OPEC+ Quotas. (Bullish, Priced In) On June 2, OPEC+ announced its extension of 3.66 MMBbl/d cuts through December 2025. Additionally, the 2.2 MMBbl/d voluntary cuts from eight member countries will continue into Q3 2024 but will start to be reversed in October at a rate of 0.18 MMBbl/d per month. OPEC+ members agreed on September 5 to delay a planned gradual 2.2 MMBbl/d supply hike by two months, shifting the start to December. The group will add 0.19 MMBbl/d in December and 0.21 MMBbl/d from January onwards, with an option to adjust or pause these hikes depending on market conditions. The cartel also reaffirmed its compensation cuts of 0.2 MMBbl/d per month through November 2025, as members such as Iraq, Russia, and Kazakhstan have struggled to meet their original production quotas.
AEGIS notes that the global crude market would quickly build inventories without OPEC's support in reducing supply.
OPEC Unwind. (Bearish, Mostly Priced in) OPEC+ agreed to restore 137 MBbl/d for December, in line with the increases scheduled for October and November. Additionally, the group announced a pause in output hikes for Q1, citing typically weaker seasonal demand. Delegates noted the January pause reflects expectations of a seasonal slowdown.
China Demand. (Bearish, Priced In) China’s onshore crude inventories declined to 1.17 billion barrels this week, down from a record 1.20 billion barrels in mid-August, according to data from Kayrros. The draws came from commercial stockpiles, partially reversing the country’s earlier stockpiling surge, a key factor that has supported global oil prices even as the broader market faces record oversupply.
USD (Bearish, Priced In) The Federal Reserve influenced the broader market backdrop after lowering its benchmark lending rate by 25 basis points to a range 3.5-3.75%. The move was widely expected and may slightly ease financial conditions while putting some downward pressure on the dollar, which is typically supportive for crude. Even so, the oil market remains driven by fundamentals.
Ukraine-Russia Resolution. (Bearish, Surprise) Ukrainian President Volodymyr Zelensky said he agreed to work on a peace plan drafted by the US and Russia aimed at ending the war in Ukraine. A peace deal, if followed by the elimination of sanctions on Russian oil over its invasion of Ukraine, could unleash supply from the world's third largest producer.
Trade War. (Bearish, Mostly Priced In) There has been an increase in tit-for-tat trade tension between the US and China, with China sanctioning the US unit of Hanwha Ocean Co., a South Korean shipping major, and warned of additional retaliatory actions against the industry. However, President Trump said high tariffs on China were “not viable,” suggesting potential for de-escalation even as broader tensions remain elevated.
Projected Oversupply. (Bearish, Mostly Surprise) The latest Short-Term Energy Outlook from the EIA reinforces a bearish outlook. The agency now expects WTI to average $50.93/Bbl in early 2026 as inventories continue to rise and global liquids production consistently outpaces demand. The EIA projects stock builds above 2 MMBbl/d next year, driven primarily by non-OPEC producers such as the United States, Brazil, Guyana, and Canada, along with additional barrels from OPEC+ as previously paused production returns to the market. Demand growth remains positive but moderate and is concentrated mainly in non-OECD Asia.
Trump/Iran/Venezuela. (Bullish, Slight Surprise) The United States seized a sanctioned supertanker off the coast of Venezuela and expanded sanctions on individuals and vessels linked to the Maduro government. These actions are meant to disrupt revenue channels and tighten enforcement around Venezuelan crude exports. They add friction to outbound flows and increase operational risk for shippers, but the market does not expect a broad or lasting disruption to overall supply. As a result, these developments have not provided meaningful support for crude prices.
Russian Supply. (Bullish, Slight Surprise) Russian exports also faced growing logistical friction as US sanctions pushed more barrels into shadow-fleet channels. Strikes on refineries and export facilities have slowed transit and increased reliance on intermediaries, lifting Russian oil-on-water above 180 MMBbl.
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