Energy Markets React as Middle East Tensions Shift: What's Driving Crude and Gasoline Moves

The February futures market is showing distinct weakness across energy commodities this week. West Texas Intermediate crude for February delivery ([CLG26]) declined 1.02 points, representing a 1.75% retreat, while February RBOB gasoline ([RBG26]) slipped 0.0306 points or 1.74% lower. The primary catalyst stems from diplomatic developments in Eastern Europe, with Ukrainian leadership signaling potential breakthrough negotiations. President Zelensky indicated he will convene with President Trump in Florida this Sunday, with a comprehensive 20-point resolution framework approximately 90% finalized. However, implementation hinges on inputs from Moscow and European capitals, leaving substantial uncertainty despite optimistic signals.

Geopolitical Supply Shocks Continue to Support Markets

Despite the headline weakness, several structural factors are providing underlying support to energy prices. Ukrainian military operations have intensified targeting of Russian refining infrastructure, with documented strikes affecting at least 28 facilities over the past quarter. This campaign has materially constrained Moscow’s export capacity for crude products. Additionally, coordinated maritime disruptions have escalated—since November’s transition, Ukrainian forces have engaged at least six tankers in the Baltic Sea region through drone and missile operations.

Beyond the Eastern European theater, the Trump administration has intensified its economic pressure on Venezuelan hydrocarbon exports. US Coast Guard operations forced the sanctioned tanker Bella 1 to abandon its approach vector toward Venezuelan waters, pushing the vessel into open Atlantic territory earlier this week. This blockade represents an extension of the administration’s stated policy to restrict oil flows from the Western Hemisphere’s largest reserve holder.

Supply Dynamics and Inventory Positioning

The broader energy inventory picture reveals tightening conditions across multiple product categories. According to the EIA’s latest snapshot (data through December 12), crude oil stocks stood at 4.0% below their five-year seasonal benchmark, while gasoline inventories registered 0.4% below comparable levels. Distillate fuels showed more pronounced weakness at 5.7% below seasonal norms. Week-over-week, US crude production remained nearly flat at 13.843 million barrels daily, just shy of November’s record output of 13.862 million bpd.

Floating storage metrics paint a contrasting picture: tanker-based crude holdings that have remained stationary for seven consecutive days contracted 7% week-on-week to 107.15 million barrels as of December 19, suggesting market participants are moving inventory into active distribution channels. Baker Hughes’ rig count data showed modest recovery with 409 active drilling units domestically (up three from the prior week), though the trend remains deeply depressed relative to the 627-rig peak from late 2022.

OPEC+ Strategy and Production Architecture

Upstream policy continues to anchor price support through disciplined production management. OPEC+ reaffirmed its commitment on November 30 to maintain production growth suspension throughout the first quarter of 2026. The cartel’s November output fell marginally by 10,000 bpd to 29.09 million bpd, consistent with its gradual normalization strategy following the 2.2 million bpd reduction implemented in early 2024. Approximately 1.2 million bpd of that original cut remains unrestored as OPEC navigates between supply recovery and global market balance.

The International Energy Administration’s October projection anticipated a record global surplus reaching 4.0 million bpd for 2026, prompting OPEC+ to adopt its cautious stance. Meanwhile, US supply projections have been incrementally revised upward—the EIA’s latest forecast for American crude production in 2025 now stands at 13.59 million bpd versus the previous 13.53 million bpd estimate, underscoring the challenge OPEC faces in managing a persistently well-supplied global market where Russian oil export constraints paradoxically support prices through scarcity value rather than demand strength.