Global Energy Demand Concerns Undercut Oil Market Rally

Crude oil and gasoline markets faced significant headwinds on Monday as weakening global economic signals dampened sentiment. January WTI crude oil (CLF26) declined 0.62 points, or 1.08%, while January RBOB gasoline (RBF26) fell 0.0198 points, or 1.13%. The selloff pushed crude to a 1.75-month low and gasoline to a 4.75-year nearby-contract low, reflecting broader concerns about energy consumption moving forward.

Demand Headwinds: China’s Economic Data Signals Weakness

The primary driver of Monday’s losses was disappointing Chinese economic data that undercut optimism about global energy demand. China’s November industrial production slowed unexpectedly to +4.8% year-over-year, down from October’s +4.9% and missing forecasts for +5.0%. Even more concerning, November retail sales rose only +1.3% year-over-year—substantially weaker than the expected +2.9% and marking the slowest growth pace in 2.75 years.

These figures suggest reduced consumption of energy-intensive goods and services across the world’s second-largest economy, directly pressuring crude valuations. Combined with the S&P 500’s slide to a 2-week low, the economic outlook deteriorated notably, which is negative for oil demand prospects.

Geopolitical Shifts May Undercut Supply Concerns

Peace negotiations over Ukraine’s conflict appear to be gaining traction. Ukrainian President Zelenskiy stated Monday that talks between the US and Ukraine aimed at ending the war were “very constructive.” If a ceasefire materializes, sanctions on Russian energy exports could potentially be lifted, removing a key supply constraint that has supported crude prices. This potential thaw in geopolitical tensions has already begun to undercut the risk premium embedded in oil futures.

Refiners Pulling Back as Crack Spreads Weaken

The crude crack spread—the profit margin for converting crude into gasoline and distillates—fell to a 2.25-month low on Monday. This deterioration discourages refiners from purchasing crude oil and processing it into finished products, reducing demand at the wellhead. Vortexa data showed that crude stored aboard stationary tankers for at least seven days rose 5.1% week-over-week to 120.23 million barrels in the week ending December 12, indicating weak downstream demand and excess supply conditions.

Supply-Side Factors Offer Limited Support

Venezuelan Production Under Pressure

Geopolitical risks in Venezuela—the world’s 12th-largest crude producer—provided some support after US forces intercepted and seized a sanctioned oil tanker off Venezuela’s coast last Wednesday. Reuters reported Thursday that additional seizures are being prepared. These actions make it increasingly difficult for Venezuelan shippers to transport crude, as logistics companies become more cautious about loading cargoes. However, this supply disruption is modest relative to global market size.

Russian Exports Remain Constrained

Reduced Russian crude exports continue to support prices. On November 19, Vortexa reported Russia’s oil product shipments fell to 1.7 million barrels per day during the first 15 days of November—the lowest level in over three years. Ukrainian drone and missile attacks have damaged at least 28 Russian refineries in the past three months, exacerbating fuel shortages and limiting Moscow’s export capacity. A recent attack damaged a Russian Baltic Sea oil terminal, forcing its temporary closure.

The Caspian Pipeline Consortium, which carries 1.6 million barrels per day of Kazakhstan’s exports, was also forced offline after pipeline damage. New US and EU sanctions targeting Russian oil companies, infrastructure, and tankers have further crimped export volumes.

OPEC+ Holds Production Line Steady

OPEC+ reinforced support for crude on November 30 by confirming it would pause production increases throughout Q1 2026. The group approved a modest 137,000 barrels per day increase for December, then halts further hikes as a global oil surplus emerges. The International Energy Agency forecasted a record global surplus of 4.0 million barrels per day for 2026.

OPEC+ is attempting to restore the 2.2 million barrels per day production cut implemented in early 2024, but still has 1.2 million barrels per day to bring back online. OPEC’s November crude production declined by 10,000 barrels per day to 29.09 million barrels per day.

US Production Continues Climbing

The EIA revised its 2025 US crude production estimate upward to 13.59 million barrels per day from 13.53 million barrels per day in the previous month. Last Wednesday’s EIA report detailed inventory conditions as of December 5: crude stockpiles were 4.3% below the seasonal 5-year average, gasoline inventories ran 1.8% below the 5-year average, and distillate stocks fell 7.7% below the seasonal norm.

US crude production in the week ending December 5 rose 0.3% week-over-week to 13.853 million barrels per day, approaching the record high of 13.862 million barrels per day set November 7. Baker Hughes reported that active US oil rigs rose by one to 414 in the week ending December 12—modestly above the 4-year low of 407 rigs recorded November 28. Over 2.5 years, US rig counts have contracted sharply from the 5.5-year peak of 627 rigs in December 2022.

Summary: Demand Concerns Undercut Oil Market Optimism

Multiple demand-related concerns dominated Monday’s crude trading session, with weakening Chinese economic data and deteriorating financial market conditions serving as primary headwinds. While constrained Russian exports, Venezuelan supply disruptions, and OPEC+ production discipline provided traditional support factors, these measures proved insufficient to offset recession fears and demand destruction signals.