Oil Markets Caught Between Peace Hopes and Supply Glut

Crude took a beating on Tuesday—WTI January futures dropped 1.51% while gasoline slipped 1.29%—hitting 5-week lows as traders bet on one unlikely outcome: the Russia-Ukraine war actually ending.

Here’s the kicker: if Russia and Ukraine actually reach a deal (ABC News reported Ukraine agreed to revised terms, though Moscow hasn’t confirmed), sanctions on Russian energy exports could unwind. That means an extra 1-2 million barrels per day flooding back into the market. The market hates that scenario.

What’s actually tanking crude right now:

Weak US data landed hard. September retail sales came in at +0.2% m/m (expected +0.4%), and the Conference Board’s consumer confidence index tanked to 88.7 in November—a 7-month low. Fewer Americans buying stuff = less energy demand = lower oil prices.

But here’s the twist—Russia’s oil exports are already getting wrecked:

Ukraine has systematically dismantled Russian refining capacity. Last month, Ukrainian drone strikes knocked out 13-20% of Russia’s refineries, cutting crude output by as much as 1.1 million bpd. Vortexa data shows Russian oil shipments fell to 1.7 million bpd in early November—the lowest in 3+ years. New US and EU sanctions are piling on more pain.

The bigger picture? Oil is drowning in supply:

OPEC flipped its Q3 forecast from a -400k bpd deficit to a +500k bpd surplus. The IEA is predicting a record 4.0 million bpd global glut in 2026. OPEC+ already tried to pause production hikes next quarter, but they’re still sitting on 1.2 million bpd of cuts they haven’t restored yet.

On the US side:

EIA raised 2025 production estimates to 13.59 million bpd. US crude inventories are running 5% below the 5-year seasonal average, but that’s not enough to offset global oversupply concerns. Active oil rigs ticked up by 2 to 419, but that’s still nowhere near the 627-rig high from December 2022.

Bottom line: Oil’s stuck between geopolitical uncertainty and a wall of supply. Peace talks could dump another 2 million bpd onto the market, but weak demand metrics are doing the heavy lifting on price right now.