Oil Markets Surge Amid Supply Disruptions and Weakening Dollar

Energy markets are displaying robust momentum today as multiple bullish catalysts converge. January WTI crude futures are up +0.68 (+1.16%), while January RBOB gasoline contracts have climbed +0.00393 (+2.16%), with crude reaching its highest level in one week. This upward trajectory is being underpinned by three primary drivers: a softer dollar, constrained supply from major producers, and escalating geopolitical tensions.

Dollar Weakness Fuels Energy Rally

The decline in the dollar index (DXY00) to a 2-week low is providing significant tailwinds for commodity prices. A weaker greenback typically enhances the appeal of dollar-denominated assets like crude oil, making them more affordable for international buyers and supporting prices higher.

Russian Supply Disruptions Accelerate Upside

Reduced Russian crude exports represent a critical supply constraint driving prices. Ukrainian drone and missile strikes over the weekend damaged the Russian Baltic Sea oil terminal, forcing operational closure. Additionally, the Caspian Pipeline Consortium, which transports approximately 1.6 million bpd of Kazakhstan’s crude exports, suspended operations after incurring pipeline damage at one of its moorings.

These disruptions compounded existing Russian export pressures. Vortexa data from November 19 revealed that Russia’s oil product shipments declined to 1.7 million bpd during the first 15 days of November—the lowest level in over three years. Ukraine’s recent offensive targeting Russian refineries has been particularly impactful: roughly 13-20% of Russia’s refining capacity was neutralized by late October, reducing output capacity by as much as 1.1 million bpd. Over the past three months alone, Ukraine has targeted at least 28 Russian refineries, intensifying fuel scarcity within Russia and curtailing crude export capabilities.

New US and EU sanctions targeting Russian oil companies, infrastructure, and tanker fleets have further restricted Moscow’s ability to move crude internationally. Evidence of supply pressures is visible in tanker storage dynamics: Vortexa reported that crude stored aboard stationary tankers (idle for at least 7 days) surged +12% week-over-week to 124.64 million barrels in the week ending November 28—the highest accumulation in approximately 2.5 years.

Venezuela Geopolitical Premium

Heightened geopolitical risks surrounding Venezuela are contributing additional support to crude valuations. Following President Trump’s statement that Venezuelan airspace should be considered closed, markets are factoring in potential supply disruptions from the world’s 12th-largest oil producer, adding a risk premium to crude prices.

OPEC+ Maintains Production Discipline

OPEC+ provided additional price support on Sunday by reaffirming its commitment to pause production increases throughout Q1 2026. At its November 2 meeting, the cartel had authorized a +137,000 bpd production rise in December, followed by a production halt in the first quarter of 2026 due to emerging global oil surpluses. The organization remains in the process of restoring the 2.2 million bpd production cuts implemented in early 2024, with approximately 1.2 million bpd still requiring restoration.

OPEC’s crude output in October increased by +50,000 bpd to 29.07 million bpd, marking the highest level in 2.5 years. However, revised global supply outlooks suggest a more constrained environment than previously anticipated.

Conflicting Demand and US Production Trends

Market dynamics present a more nuanced picture when examining broader supply-demand fundamentals. OPEC revised its Q3 global oil market assessment from a deficit to a surplus, driven partly by stronger-than-expected US production. The organization now forecasts a 500,000 bpd surplus for Q3, reversing last month’s estimate of a -400,000 bpd deficit.

The EIA elevated its 2025 US crude production forecast to 13.59 million bpd from 13.53 million bpd previously. However, current indicators suggest momentum may be moderating: US crude production in the week ending November 21 declined -0.1% week-over-week to 13.814 million bpd, retreating from the record high of 13.862 million bpd registered during the week of November 7.

The IEA projected a record global oil surplus of 4.0 million bpd for 2026, signaling potential medium-term headwinds for crude valuations. This outlook contrasts with current near-term supply constraints supporting prices today.

US Inventory Levels and Rig Activity

Latest EIA inventory data as of November 21 reveals mixed positioning: US crude inventories stood -3.8% below the seasonal 5-year average, gasoline inventories were -3.3% below the seasonal range, and distillate inventories tracked -6.9% below the 5-year seasonal baseline.

On the drilling front, Baker Hughes reported that active US oil rigs in the week ending November 28 fell by -12 to 407—a 4-year low. This decline reflects the industry’s pullback from the 5.5-year high of 627 rigs recorded in December 2022, with drilling activity contracting sharply over the past 2.5 years.

Summary

Today’s energy market dynamics underscore the complex interplay between supply disruptions, geopolitical risks, and macroeconomic factors. While near-term supply constraints from Russia and Venezuela, coupled with dollar weakness, provide immediate support for crude and US oil exports dynamics, longer-term forecasts suggest demand normalization and potential oversupply scenarios may ultimately constrain rallies.