Supply Surplus Expectations Increase, Brent Crude Falls Below $60

December 17th, according to reports

On December 16, international crude oil futures saw a significant drop. Brent crude oil fell below the $60 mark, while the February contract of U.S. WTI crude oil futures, which saw active trading, closed at $55.13 per barrel—a price decrease of $1.54, or 2.7%. The February contract of Brent crude oil futures closed at $58.92 per barrel, down $1.64, or 2.7%. Both WTI and Brent hit their lowest levels of the year. The main reason is the growing prospect of a peace agreement between Ukraine and Russia, coupled with heightened concerns about oversupply due to expectations of eased sanctions on Russian oil.

Supply surplus crisis emerges

Expectations of an oversupply in the global crude oil market are intensifying. The implementation of production adjustment policies by OPEC and its allies (OPEC+) has been less than satisfactory. The modest production increase of 137,000 barrels per day decided at the November meeting did not boost oil prices; on the contrary, given the currently weak supply-and-demand outlook, this decision has had a somewhat negative impact on oil prices.

More importantly, with expectations of rising Russian oil inventories, U.S. officials stated on December 15, local time, that the overall progress of U.S.-Ukrainian-Berlin negotiations has been “very positive,” with preliminary consensus already reached on several key issues and the process moving steadily toward a peace agreement. These positive signals have triggered widespread market concerns about a potential future oversupply. According to industry data calculations, Russia’s November exports of petroleum products by sea fell by only 0.8% compared to October, indicating that the impact of sanctions on Russian oil is now waning. Moreover, should restrictions be eased in the future, Russia’s share of the global oil market still has room for further growth.

High oil inventories weigh on oil prices

Previously, the International Energy Agency (IEA) reported in its October monthly report that global crude oil inventories observed in October rose to a four-year high—approximately 8 billion barrels—marking the highest level since July 2021. Preliminary data for November indicate that global inventories have continued to rise, primarily driven by an increase in onshore crude oil stocks outside OECD countries. The IEA’s monthly report highlights that oversupply pressures will persist in 2026, emphasizing that global crude oil supply is set to increase by 2.4 million barrels per day in 2026, potentially leading to a sustained surplus situation. This suggests significant upward pressure on oil prices.

U.S. Finished Oil Inventories Rise

On Tuesday, December 16, data released by the American Petroleum Institute (API) showed that U.S. crude oil inventories fell last week, while gasoline and distillate fuel inventories rose. According to API data, as of the week ending December 12, U.S. crude oil inventories decreased by 9.3 million barrels. Gasoline inventories increased by 4.8 million barrels, and distillate fuel inventories rose by 2.5 million barrels compared to the previous week. Analysts had previously forecast that crude oil inventories would decline by about 1.1 million barrels last week, with distillate fuel inventories—including diesel and heating oil—expected to rise by roughly 1.2 million barrels, and gasoline inventories estimated to increase by about 2.1 million barrels. The larger-than-expected increase in U.S. refined product inventories last week has dampened confidence in U.S. petroleum consumption demand.

Outlook for the Future Market

In the short term, the supply-demand contradiction in the crude oil market is evident, and oil prices are likely to remain low. In the medium to long term, however, with adjustments in production policies by oil-producing countries and influenced by global economic growth prospects, there is still room for crude oil prices to improve. Additionally, what deserves close attention recently is the substantive progress in the peace negotiations between Ukraine and Russia.