Crude prices drop amid expectations that Venezuelan oil supplies will remain steady

Oil Market Update: Prices Drop Amid Venezuelan Supply Developments

February WTI crude oil (CLG26) ended the day down by 0.81 points, or 1.42%, while February RBOB gasoline (RBG26) slipped by 0.007 points, or 0.04%.

Both crude oil and gasoline prices faced downward pressure, with crude reaching its lowest point in two weeks. The decline followed the United States' decision to ease restrictions on Venezuelan oil exports. Additionally, President Trump announced that Venezuela's interim government had agreed to transfer up to 50 million barrels of previously sanctioned, high-quality oil to the US.

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Oil prices rebounded from their lowest levels after the latest EIA report showed a larger-than-expected drop in weekly crude inventories. Geopolitical risks also lent support, as the US seized a Russian-flagged oil tanker over sanctions violations. Furthermore, the S&P 500's rally to a new record high reflected optimism about the economy, which bodes well for energy demand.

However, concerns about weakening energy demand weighed on crude after Saudi Arabia reduced the price of its Arab Light crude for February deliveries for the third consecutive month.

Morgan Stanley now anticipates a growing global oil surplus, expecting it to peak mid-year. The bank lowered its first-quarter crude price estimate to $57.50 per barrel from $60, and its second-quarter forecast to $55 from $60.

According to Vortexa, the volume of crude stored on tankers stationary for at least a week dropped by 3.4% week-over-week to 119.35 million barrels for the week ending January 2.

Robust demand from China is helping to support prices. Kpler data indicates that China's crude imports are projected to rise by 10% month-over-month in December, reaching a record 12.2 million barrels per day as the country rebuilds its inventories.

Crude prices also found support after OPEC+ confirmed it would maintain its pause on production increases through the first quarter of 2026. At its November 2025 meeting, OPEC+ announced a 137,000 barrel per day increase for December but decided to halt further hikes in early 2026 due to the anticipated global surplus. The IEA forecasted a record surplus of 4 million barrels per day for 2026. OPEC+ is working to restore the 2.2 million barrels per day cut made in early 2024, with 1.2 million barrels per day yet to be reinstated. OPEC's crude output in November declined by 10,000 barrels per day to 29.09 million barrels per day.

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Over the past four months, Ukrainian drone and missile strikes have hit at least 28 Russian refineries, disrupting Russia's oil export capacity and tightening global supplies. Since late November, Ukraine has intensified attacks on Russian tankers, with at least six vessels targeted in the Baltic Sea. New sanctions from the US and EU on Russian oil companies, infrastructure, and shipping have further restricted Russian exports.

Last month, the IEA projected that the global oil surplus would expand to a record 3.815 million barrels per day in 2026, up from a four-year high of over 2 million barrels per day in 2025.

OPEC recently revised its third-quarter global oil market outlook from a deficit to a surplus, citing higher-than-expected US production and increased OPEC output. The organization now expects a 500,000 barrel per day surplus in Q3, compared to last month's forecast of a 400,000 barrel per day deficit. The EIA also raised its 2025 US crude production estimate to 13.59 million barrels per day, up from 13.53 million previously.

The latest weekly EIA report presented mixed results for crude and refined products. Gasoline inventories surged by 7.7 million barrels to a ten-month high, far exceeding expectations, as US gasoline consumption dropped to a one-year low of 8.17 million barrels per day. Distillate stocks climbed by 5.59 million barrels to a one-year high, also surpassing forecasts. Crude supplies at Cushing, the WTI futures delivery point, increased by 728,000 barrels. On a positive note, crude inventories fell by 3.83 million barrels, a larger drawdown than anticipated.

According to the EIA, as of January 2, US crude oil inventories were 4.1% below the five-year seasonal average, gasoline stocks were 1.6% above average, and distillate inventories were 3.1% below the five-year norm. US crude production for the week ending January 2 slipped by 0.1% week-over-week to 13.811 million barrels per day, just under the record set in early November.

Baker Hughes reported that the number of active US oil rigs rose by three to 412 in the week ending January 2, rebounding from the 4.25-year low of 406 rigs seen in mid-December. Over the past two and a half years, the US rig count has dropped sharply from the 5.5-year high of 627 rigs recorded in December 2022.