The bearish sentiment in the crude oil markets continues unabated, despite the substantial drawdowns in US crude oil inventories. According to the American Petroleum Institute (API), US crude inventories fell by 4.8 million barrels and 2.48 million barrels respectively, during the last two weeks.
As of 16:50 GMT on Friday, the prices of WTI and Brent were $57.53 and $62.19 respectively. In this context, forecasts by both investment banks and the EIA (US Energy Information Administration) that oil prices will likely remain below $60 a barrel in 2026 hardly serve as a catalyst to shore up battered investor sentiment.
To capitalize on the declining oil prices, US media report that the Trump administration has taken steps to refill the Strategic Petroleum Reserve (SPR), though not at a rate anticipated by energy analysts.
In 2021 and 2022, President Biden was forced to tap into the SPR and release oil, as US gas prices hit above $5.00. The reserve, constructed along the Texas Gulf Coast and Louisiana in the 1970s in response to the Arab oil embargo on the West, held over 600 million barrels before President Biden took the unprecedented step to release oil as a last resort to bring down prices at the pump.
Although this depleted the reserve by over 300 million barrels—oil intended for national emergencies like war—the Biden administration is credited with managing to stabilize oil prices.
President Trump, meanwhile, promised to refill the SPR if he was re-elected. The slow filling process, despite the substantial fall in oil prices, has left investors and analysts somewhat baffled, though.
Meanwhile, persistent concerns over global over-supply remain: OPEC+ has been clear that it wants to restore the supply cuts it adopted two years ago for reviving prices; non-OPEC players are boosting their share of supply; and the United States retains its position as the world's largest producer of crude oil amid a shale oil boom.
The geopolitical risks, meanwhile, do not seem to trigger a major supply disruption, although most of them are far from over. For instance, the no-fly zone, unilaterally declared by President Donald Trump in Venezuela, still remains in place without any military confrontation so far. Since the South American country has the world's largest proven oil reserves, a potential conflict could lead to a substantial peak in the price of oil.
In the Middle East, the ceasefire between Israel and Hamas still holds, despite regular skirmishes and mutual accusations over violations. In Iran, the sanctions are biting hard, but their impact pales into insignificance compared to the severe water scarcity facing the country, including its capital, Tehran. Although the Iranian president talks about shifting the capital of over 10 million Iranians elsewhere to mitigate the issue, it seems to be easier said than done.
In the middle of the gloomy outlook over falling oil prices, investors pin their hopes on the revival of the Chinese economy, having been slightly encouraged by the latest manufacturing data from the world's second-largest economy. China's manufacturing PMI, which gauges activity in the sector, rose modestly from 49 in October to 49.2 in November. Not only is this modest, but it remains below the 50% threshold, indicating contraction.
Although relations between the US and China improved slightly over tariffs, another crisis looms in Southeast Asia between Japan and China, which the latter terms as provocation by the former. Furthermore, the conflict that flared up between Cambodia and Thailand once again, despite President Trump's peace overtures, suggests the fallout on many fronts will not be limited to the region.
