Peace Negotiations Weigh on Crude Markets as Supply Concerns Persist

Energy futures retreated sharply on Tuesday as market participants reassessed geopolitical risks surrounding the Russia-Ukraine conflict. WTI crude for January delivery ([CLF26]( fell 0.89 points to close at -1.51%, while January RBOB gasoline ([RBF26]( slipped 1.29% on the session. Both commodities hit 5-week lows as reports of potential peace agreements between Moscow and Kyiv sparked expectations of normalized Russian energy flows.

The timing of Tuesday’s selloff coincided with disappointing economic data from the US. September retail sales came in at +0.2% month-over-month, falling short of the anticipated +0.4% increase. Private payroll metrics also deteriorated, with ADP reporting average weekly job losses of 13,500 over the four weeks ending November 8. Consumer sentiment weakened further as the Conference Board’s confidence index dropped 6.8 points to 88.7 in November, significantly below the forecast of 93.3. This softer demand picture added downward pressure to crude valuations alongside the peace deal speculation.

Supply Dynamics: Russia’s Export Capacity Under Pressure

Despite near-term weakness, structural support for oil prices remains embedded in supply-side constraints. Vortexa data revealed that Russian crude product shipments slumped to 1.7 million barrels per day during the first half of November—the lowest reading in over three years. Ukrainian military operations targeting at least 28 Russian refineries over the past quarter have proven particularly disruptive, eliminating between 13-20% of Russia’s refining capacity and reducing output by approximately 1.1 million bpd.

Multilayered sanctions from the US and European Union on Russian energy infrastructure and vessel fleets have compounded export challenges. The cumulative effect has kept crude prices from falling further, despite the market’s initial euphoria over potential war resolution.

Global Inventory Trends and Production Outlook

Recent inventory dynamics paint a complex picture. As of November 14, US crude stockpiles sat 5.0% below the five-year seasonal average, while gasoline reserves were 3.7% below normal levels and distillate inventories lagged 6.9% behind historical norms. Market participants anticipate Wednesday’s EIA report will show crude inventory declines of 2.36 million barrels alongside gasoline supply increases of 1.16 million barrels.

Production metrics tell a different story about market balance. US crude output fell 0.2% week-over-week to 13.834 million bpd in the week ending November 14, retreating from the prior week’s record of 13.862 million bpd. The active US oil rig count rose modestly by 2 units to 419 as of November 21, though this remains elevated compared to the four-year trough of 410 rigs recorded in August but dramatically lower than the 627-rig peak from December 2022.

OPEC+ Recalibration Amid Surplus Concerns

OPEC’s latest production figures underscore ongoing market tightness on the supply side. October output rose 50,000 bpd to reach 29.07 million bpd—a 2.5-year high—though the cartel faces mounting evidence of global oversupply. The organization now projects a 500,000 bpd surplus for Q3 2025, a dramatic reversal from last month’s forecast of a 400,000 bpd deficit. This shift reflects stronger-than-anticipated US production and OPEC’s own crude output increases.

In response, OPEC+ committed to raising production by 137,000 bpd in December while signaling a production pause throughout Q1 2026. The cartel continues working toward restoring the full 2.2 million bpd reduction implemented in early 2024, with 1.2 million bpd still pending restoration. The International Energy Agency projects an unprecedented 4.0 million bpd global surplus for 2026, adding urgency to OPEC+'s measured approach.

Geopolitical Wildcards Supporting Price Floor

A weaker US dollar ([DXY00]( provided modest price support on Tuesday, limiting downside moves in crude. Beyond currency dynamics, oil maintains underlying support from unresolved geopolitical tensions and the potential for military escalation involving Venezuela, ranked as the world’s 12th-largest petroleum producer. Tanker-based crude storage surged 9.7% week-over-week to 114.31 million barrels as of November 21—the highest level in 2.25 years—suggesting market participants remain cautious about near-term supply disruptions despite dovish headlines on the Russia-Ukraine situation.

The EIA simultaneously raised its 2025 US crude production forecast to 13.59 million bpd from the prior month’s estimate of 13.53 million bpd, indicating confidence in sustained American output. This technical adjustment, combined with persistent inventory pressures and unresolved international risks, continues to establish a price floor even as market sentiment has shifted toward optimism around potential conflict resolution.