The oil market is on track to settle lower this week as market participants digest the implications of US sanctions on Russian oil flows. Clearly, the price action suggests that the market is not convinced that we will lose a significant amount of Russian oil supply. Yesterday’s meeting between President Trump and President Xi only served to strengthen this conviction, with Russian oil flows to China apparently not part of broader talks between the two leaders. This is important for the market given that China imports around 2m b/d of Russian oil. It’s the only buyer that could meaningfully increase its purchases if India reduced its imports of Russian crude.
On Sunday, OPEC+ is set to meet. It appears likely that the group will agree to another 137k b/d supply increase for December. The uncertainty surrounding sanctions on Russia also supports this increase. However, the move will only reinforce the bearish outlook for the market, adding to the substantial surplus expected through 2026. Obviously, this is assuming no supply shocks from Russia.
Middle distillate cracks remain well supported, with lingering uncertainty over the impact of sanctions on Russian diesel exports. The ICE gasoil crack is holding around $30/bbl, after a strong rally since mid-October. However, the latest data from Insights Global shows that gasoil inventories in the Amsterdam-Rotterdam-Antwerp (ARA) region increased by 109kt WoW to 2.27mt, which saw its gap to the 5-year average widen. In Singapore, meanwhile, after a significant increase in middle distillate stocks the previous week, stocks declined by 6.25m barrels over the last week.
US natural gas Dec’25 futures rallied 3.7% yesterday, and the strength has continued in early morning trading today. The move higher comes despite US natural gas inventories rising by 74 bcf over the last week, in line with expectations, and above the 5-year average increase of 67 bcf. Instead, the market appears to be focused on forecasts for cooler weather, which should prove supportive of demand.