Geopolitical Tensions and Supply Constraints Push Crude Oil Prices Higher

Market Rally Driven by Multiple Headwinds

Crude oil markets closed significantly firmer on Monday, with February WTI climbing 2.36% while gasoline futures gained 1.19%. The rally reflects a confluence of supply-side pressures and demand-side optimizations that continue to shape price dynamics across global energy markets.

Supply-Side Disruptions Tightening the Market

The most pronounced pressure on crude oil stems from escalating supply constraints. Ukraine’s sustained campaign targeting Russian infrastructure has severely impacted Moscow’s export capacity—drone and missile strikes on Russian refineries have reached at least 28 targets over four months, while Baltic Sea shipping lanes face repeated attacks on oil tankers. These disruptions, compounded by fresh US and EU sanctions targeting Russian oil infrastructure and carriers, are meaningfully reducing the volumes Russia can deliver to global markets.

Storage data underscores the tightness: stationary crude inventory aboard tankers surged 15% week-over-week to 129.33 million barrels in the week ended December 26, signaling limited spare capacity for displaced barrels.

OPEC’s Production Moderation and Supply Rebalancing

OPEC itself is contributing to upward price pressure. The cartel reduced November production by 10,000 bpd to 29.09 million bpd, while remaining committed to its pause on production increases through Q1 2026. This measured approach reflects a strategic recalibration: OPEC previously announced a December production bump of 137,000 bpd, followed by a Q1 2026 production hold. The organization still faces restoration obligations on 1.2 million bpd of the 2.2 million bpd cuts initiated in early 2024.

Chinese Demand Emerging as Counterweight

On the demand side, China’s crude import trajectory is providing support. Kpler data shows Chinese shipments are poised to reach a record 12.2 million barrels per day this month—a 10% month-over-month increase as Beijing rebuilds strategic reserves. This surge reflects government commitment to sustaining economic momentum into 2026, offering a crucial counterbalance to surplus conditions elsewhere.

Geopolitical Developments Adding Further Pressure

Additional supportive factors include US counterterrorism operations in Nigeria, an OPEC member state, and the ongoing US blockade of sanctioned Venezuelan oil tankers. The Coast Guard forced the Bella 1 to abandon approach vectors last week, maintaining the administration’s maritime containment strategy.

Inventory and Production Backdrop

The EIA delayed its weekly inventory report Monday due to holiday scheduling. Prior data from December 12 showed US crude inventories sitting 4.0% below the five-year seasonal average, with gasoline 0.4% below average and distillate supplies down 5.7%. US production inched down to 13.843 million bpd in the week ended December 12, though remaining near record territory. Active oil rig counts rose modestly to 409 units, recovering from the 4.25-year trough of 406 the prior week.

The International Energy Agency’s October forecast of a 4.0 million bpd global surplus for 2026 continues to weigh on sentiment, yet near-term supply constraints and Chinese demand resilience are providing constructive underpinning for crude valuations.