Oil Market Extends Gains on Geopolitical Tensions and Demand Recovery Signals

Crude Rally Intensifies Amid War Premium and Chinese Recovery Hopes

Crude oil futures advanced sharply in early trading, with February WTI crude oil posting gains of +1.34 points (+2.36%) while February RBOB gasoline added +0.0203 (+1.19%). Market momentum reflects growing concerns over global supply disruptions coupled with strengthening demand signals from China’s economic stimulus measures pledged for the coming year.

Geopolitical Risks Sustain Price Floor

Supply-side pressures continue to support crude valuations across multiple fronts. Ukrainian military operations have now targeted 28 Russian refineries over the past four months, substantially constraining Moscow’s export capacity. Beyond refinery attacks, Ukraine has intensified strikes on Russian tanker fleets, with at least six vessels damaged in Baltic Sea operations since late November. These actions, combined with fresh US and EU sanctions targeting Russian oil infrastructure and shipping assets, have meaningfully reduced Russian crude supplies reaching global markets.

In parallel, US military action in Nigeria—an OPEC member nation—has disrupted regional stability. Recent strikes against terrorist organizations support oil price resilience, though this represents a secondary driver versus primary supply constraints.

The Biden administration’s continued blockade of sanctioned Venezuelan oil tankers adds another layer of supply tightness. The US Coast Guard intercepted the sanctioned vessel Bella 1 last week, forcing it away from Venezuelan waters into the Atlantic, effectively removing additional barrels from global circulation.

Demand Tailwinds from Asia’s Import Surge

Chinese energy consumption is emerging as a critical price support mechanism. According to Kpler data, China’s crude import pace this month is projected to surge +10% on a monthly basis to an unprecedented 12.2 million bpd, signaling aggressive inventory rebuilding by Beijing. This demand recovery reflects government commitment to sustaining economic momentum throughout 2025.

Inventory Dynamics and Production Outlook

Latest tanker storage data from Vortexa reveals crude held on stationary vessels (idle for 7+ days) climbed +15% weekly to 129.33 million barrels as of December 26, indicating shifting storage economics and potential demand softness. However, US crude inventories remain constrained relative to seasonal norms—sitting -4.0% below the 5-year average as of mid-December. Gasoline reserves stand -0.4% below average, while distillate stocks lag -5.7%.

US crude production in the most recent week came in at 13.843 million bpd, a marginal -0.1% decline week-over-week but still tracking near record territory. The EIA has revised its 2025 US production forecast upward to 13.59 million bpd from the prior 13.53 million bpd estimate.

OPEC+ Maintains Production Discipline

OPEC+ reaffirmed its commitment on November 30 to pause production increases throughout Q1 2026, maintaining production discipline despite market dynamics. The cartel had announced December output would rise +137,000 bpd following November’s decision, with cuts returning in early 2026. Current OPEC crude output sits at 29.09 million bpd, down -10,000 bpd month-over-month.

However, the IEA’s October forecast projects a record global oil surplus reaching 4.0 million bpd in 2026, pressuring the cartel’s rationale for sustained production caps. OPEC+ still must restore 1.2 million bpd of the 2.2 million bpd cut implemented in early 2024, and revised estimates now point to a 500,000 bpd surplus in Q3 versus the prior forecast showing a -400,000 bpd deficit.

Baker Hughes data showed active US oil rigs increased +3 to 409 in the week ending December 26, recovering from a 4.25-year low of 406 rigs posted the prior week. Notably, rig counts have contracted sharply over 2.5 years, down from a 5.5-year peak of 627 rigs in December 2022.

Market Watch: EIA Data Delayed

The EIA announced Monday that its weekly inventory report faces further delays, with no release timeframe specified. Data for the week ending December 19 was already pushed back due to holiday schedules, limiting near-term transparency on storage trends.