Crude Oil Prices Decline Amid Stronger Dollar and Worries Over Energy Demand

Oil and Gas Market Update

February WTI crude oil (CLG26) is currently trading lower by 0.24 points, or 0.41%, while February RBOB gasoline (RBG26) has edged up slightly by 0.0005 points, or 0.03%.

Today’s trading session has seen a divergence between crude oil and gasoline prices. Crude oil, which initially moved higher, reversed course and declined as the US dollar gained strength. Additional downward pressure on crude comes from ongoing worries about global energy demand, particularly after Saudi Arabia reduced the price of its Arab Light crude for February deliveries for the third consecutive month.

Market Factors Impacting Oil Prices

The narrowing of the crack spread has negatively affected oil prices. On Monday, the crack spread dropped to its lowest point in nearly a year, making it less attractive for refiners to purchase crude and convert it into gasoline and distillates.

According to Vortexa, the volume of crude oil stored on tankers that remained stationary for at least a week fell by 3.4% week-over-week, reaching 119.35 million barrels for the week ending January 2.

On the positive side, robust demand from China is lending support to oil prices. Data from Kpler indicates that China’s crude imports are projected to rise by 10% month-over-month in December, hitting a record 12.2 million barrels per day as the country replenishes its reserves.

OPEC+ and Global Supply Developments

Crude oil found some support after OPEC+ reaffirmed its intention to halt production increases during the first quarter of 2026. At its November 2025 meeting, OPEC+ had announced a production boost of 137,000 barrels per day for December, but plans to pause further increases in early 2026 due to an anticipated global oil surplus. The International Energy Agency (IEA) predicted in October that the surplus could reach a record 4 million barrels per day in 2026. OPEC+ is working to fully restore the 2.2 million barrels per day cut made in early 2024, with 1.2 million barrels per day yet to be reinstated. In November, OPEC’s crude output declined by 10,000 barrels per day to 29.09 million barrels per day.

Geopolitical and Sanctions Impact

Over the past four months, Ukrainian drone and missile strikes have targeted at least 28 Russian refineries, restricting Russia’s ability to export crude and tightening global supplies. Since late November, Ukraine has also escalated attacks on Russian tankers, with at least six vessels hit in the Baltic Sea. Additionally, new US and EU sanctions targeting Russian oil companies, infrastructure, and shipping have further limited Russian oil exports.

Additional Market Insights

Last month, the IEA forecasted that the global crude surplus would expand to a record 3.815 million barrels per day in 2026, up from a four-year high of over 2 million barrels per day in 2025.

OPEC recently revised its third-quarter global oil market outlook, shifting from a projected deficit to a surplus as US production outpaced expectations and OPEC increased its own output. The organization now anticipates a 500,000 barrel per day surplus in Q3, compared to last month’s forecast of a 400,000 barrel per day deficit. The EIA also raised its 2025 US crude production estimate to 13.59 million barrels per day, up from 13.53 million previously.

The latest EIA report from last Wednesday showed that as of December 26: (1) US crude oil inventories were 3% below the five-year seasonal average, (2) gasoline inventories were 1.9% above the average, and (3) distillate stocks were 3.7% below the seasonal norm. US crude production for the week ending December 26 remained steady at 13.827 million barrels per day, just shy of the record 13.862 million barrels per day set in early November.

Baker Hughes reported that the number of active US oil rigs rose by three to 412 for the week ending January 2, rebounding from a 4.25-year low of 406 rigs seen in mid-December. Over the past two and a half years, the US rig count has dropped sharply from a 5.5-year high of 627 rigs recorded in December 2022.