On December 16th, international crude oil futures experienced a significant decline. Brent crude oil fell below the $60 mark, and the active February contract settlement price for US WTI crude oil futures was $55.13 per barrel, a decrease of $1.54 or 2.7%. The settlement price of Brent crude oil futures for February was $58.92 per barrel, a decrease of $1.64 or 2.7%. WTI and Brent both reached their lowest levels of the year. Due to the increased prospects of reaching a peace agreement between Ukraine and Russia, and the expected relaxation of sanctions on Russian oil, concerns about oversupply have intensified.

The crisis of oversupply has emerged

The expectation of oversupply in the global crude oil market has increased. The implementation of production adjustment policies by the Organization of the Petroleum Exporting Countries and its allies (OPEC+) has been unsatisfactory. The decision made at the November meeting to slightly increase production by 137,000 barrels per day in December did not boost oil prices, but instead had a negative impact on oil prices in the current context of poor supply and demand prospects.

More importantly, it is expected that Russia's oil reserves will increase. On December 15th local time, US officials stated that the overall progress of the US Ukraine Berlin negotiations is "very positive", and preliminary consensus has been formed on multiple key issues, and progress is being made towards reaching a peace agreement. Positive signals have caused widespread concern in the market about future oversupply. According to industry data calculations, Russia's offshore oil product exports in November only decreased by 0.8% compared to October. This indicates that the impact of sanctions on Russian oil is currently weakening, and if restrictions are relaxed in the future, there is still room for improvement in Russia's oil market share.

High oil inventory suppresses oil prices

Previously, the October report of the International Energy Agency (IEA) showed that global observed crude oil inventories rose to a four-year high of approximately 8 billion barrels in October, setting a new high since July 2021. Preliminary data for November shows that global inventories have further increased, mainly due to an increase in non OECD onshore crude oil inventories. The IEA monthly report shows that there is still excess pressure in 2026, emphasizing that global crude oil supply will increase by 2.4 million barrels per day in 2026, and a pattern of oversupply may form, indicating significant upward pressure on oil prices.

Increased inventory of refined oil products in the United States

On Tuesday, December 16th, data released by the American Petroleum Institute (API) showed that US crude oil inventories decreased last week, while gasoline and distillate inventories increased. API data shows that as of the week ending December 12th, US crude oil inventories decreased by 9.3 million barrels. Gasoline inventory increased by 4.8 million barrels, and distillate inventory increased by 2.5 million barrels compared to a week ago. Analysts previously expected that crude oil inventories would decrease by about 1.1 million barrels last week, while distillate oil inventories including diesel and heating oil would increase by about 1.2 million barrels, and gasoline inventories were estimated to increase by about 2.1 million barrels. Last week, there was an unexpected increase in the inventory of refined oil products in the United States, which suppressed confidence in US oil consumption demand,

SunSirs believes that in the short term, there is a clear supply-demand imbalance in the crude oil market, and oil prices may continue to operate at a low level. In the medium to long term, with the adjustment policies of oil producing countries and the impact of global economic growth expectations, there is still room for improvement in crude oil prices. In addition, it is important to pay attention to the substantive progress of the peace talks between Ukraine and Russia in the near future.

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