Oil Slumps as Peace Hopes Clash with Supply Realities

Crude took a beating Friday—WTI January contracts dropped 1.59% while RBOB gasoline fell 1.62%, both hitting 4-week lows. The culprit? A stronger dollar (DXY hitting 5.5-month highs) and tentative peace signals between Ukraine and Russia. But here’s the twist: when Europe pushed back on the US-Russia peace draft, oil recovered from its worst levels, showing traders aren’t buying the ceasefire narrative just yet.

The bigger picture is messy. OPEC flipped its Q3 forecast from a 400k bpd deficit to a 500k bpd surplus—US output beat expectations and OPEC itself cranked up production. Meanwhile, the EIA bumped 2025 US crude forecasts to 13.59M bpd. Sounds bearish, right?

Not so fast. Russia’s export game is getting wrecked. Vortexa data shows Moscow’s shipments cratered to 1.7M bpd in early November (3-year low) thanks to Ukrainian drone strikes on refineries. Ukraine’s taken out 13-20% of Russia’s refining capacity, cutting output by up to 1.1M bpd. Fresh US-EU sanctions on Russian oil infrastructure are piling on the pressure.

Geopolitical wildcards keep oil supported: Iran nabbed a tanker in the Gulf of Oman, the US is flexing military muscle near Venezuela (world’s 12th-largest producer), and OPEC+ just paused production hikes for Q1-2026 as a global surplus looms.

The storage picture is bloated—crude parked on stationary tankers hit 103.41M barrels (highest since June 2024). But US inventories still sit 5% below seasonal averages, gasoline down 3.7%, distillate down 6.9%. Production ticked up 2 rigs to 419 total (still way down from the 627-rig peak in late 2022).

Bottom line: Peace chatter + dollar strength = near-term headwinds. But sanctions squeeze + geopolitical tension + OPEC cuts = built-in support. It’s a tug-of-war.