U.S. Policy Shift and Supply Glut Concerns Weigh on Crude Oil Recovery

Crude oil prices continued their downward trajectory on Tuesday, with WTI futures failing to capitalize on last week’s geopolitical disruptions in Russia’s export infrastructure. The December contract slipped by $0.09 to settle at $60.01 per barrel, as traders pivoted focus from short-term supply shocks toward persistent oversupply risks projected through 2026.

Market Sentiment Shifts Away From Supply Shock

Ukraine’s strikes on Russian oil facilities appeared to have only temporary market impact. After hitting the Novorossiysk export terminal and the Caspian Pipeline Consortium facility last Friday—disrupting approximately 2.2 million barrels daily (2% of global output)—initial bullish momentum has faded. The blockade temporarily removed substantial volumes from the world’s second-largest oil exporter, yet two tankers resumed loading at Novorossiysk yesterday, signaling a faster-than-expected recovery.

Reports confirm Ukrainian hits on Russia’s Ryazan and Novokuibyshevsk refineries, though Russian officials have remained silent on damage assessments. This ongoing disruption had sparked concerns about prolonged export halts, but the rapid resumption of loading operations undermined those narratives.

U.S. Escalates Pressure With Aggressive New Sanctions

The Biden administration intensified economic pressure by imposing sanctions effective November 21 targeting Russian oil majors Rosneft and Lukoil, prohibiting U.S. trading partners from conducting business with these firms. More provocatively, U.S. President Donald Trump threatened even steeper consequences, warning of potential tariffs reaching 500% against nations maintaining trade relationships with Russia—with Iran potentially added to such restrictions.

These punitive measures aim to force Russia toward ceasefire negotiations, yet traders appear unconvinced of their immediate oil price implications given the broader supply landscape.

Long-Term Oversupply Concerns Dominate Price Direction

The dominant headwind for crude remains structural. Recent EIA forecasts predict a significant market surplus in 2026 driven by excess production from OPEC+ and non-OPEC nations coupled with lackluster demand growth. This outlook directly challenges bullish narratives tied to geopolitical disruptions.

OPEC’s November 2 decision to pause production increases for Q1 2026 was widely interpreted as tacit acknowledgment of weakening demand prospects. Notably, the cartel had approved a 137,000 barrel-per-day production increment for December, suggesting internal confidence remains cautious. Independent analysis from ING forecasts continued surplus conditions extending through 2026, effectively capping upside from temporary Russian export interruptions.

Dollar Dynamics and Fed Policy Emerge as Critical Variables

With the U.S. government shutdown resolved last Thursday, economic releases are expected to provide fresh signals about Federal Reserve policy direction. Since crude is dollar-denominated, the Fed’s decisions through year-end will likely prove decisive for oil trajectory. Any monetary policy pivots announced next month could materially alter the macro backdrop for energy prices.

The confluence of elevated supply expectations, easing geopolitical fears, and macro uncertainty from U.S. policy continues to keep crude investors cautious despite intermittent disruption-driven rallies.