Oil Prices Surge Amid Global Supply Concerns

Oil prices soared to a seven-week high, climbing approximately 2% on Wednesday, driven by an unexpected decline in U.S. crude inventories and mounting supply disruptions in key oil-producing regions. Brent crude futures rose $1.64, or 2.4%, settling at $69.27 per barrel, while U.S. West Texas Intermediate (WTI) crude futures gained $1.59, or 2.5%, reaching $65.00 per barrel. This marked the highest close for Brent since early August and for WTI since early September, reflecting a tightening global oil market.

The U.S. Energy Information Administration reported a surprise drawdown of 607,000 barrels in U.S. crude inventories last week, contrasting with expectations of a 235,000-barrel build. This reduction, coupled with declines in gasoline and distillate stocks, underscored a tighter-than-anticipated supply landscape. Over the past four weeks, total products supplied in the U.S. averaged 20.5 million barrels per day, a modest 0.9% increase from the previous year, while gasoline demand held steady at 8.8 million barrels daily.

Geopolitical tensions further fueled the bullish sentiment. In Russia, Ukraine’s military struck two oil pumping stations in the Volgograd region, and a state of emergency was declared in Novorossiisk, a critical Black Sea port housing major oil and grain export terminals. These disruptions heightened concerns about Russian oil supply, especially as the country faces potential new sanctions and ongoing Ukrainian drone attacks on its energy infrastructure. Russia, the second-largest crude producer in 2024, has seen reduced refinery output, tightening availability of certain fuel grades.

Elsewhere, export challenges in Iraq and Venezuela added to the supply squeeze. A deal to resume oil exports from Iraq’s Kurdistan region, which could have restored 230,000 barrels per day to global markets, stalled due to unresolved debt repayment disputes, halting pipeline flows to Turkey since March 2023. In Venezuela, U.S. permit issues have curtailed exports, limiting the outflow of the country’s heavy, high-sulfur crude. These disruptions have shifted market focus to supply constraints, overshadowing earlier expectations of a global oil surplus in the last quarter of the year.

Despite these bullish factors, market dynamics remain complex. The International Energy Agency forecasts elevated global oil supply in 2026, driven by increased OPEC+ output and non-OPEC production growth. However, ongoing geopolitical risks, including potential stricter sanctions on Russia and uncertainties in the Middle East, continue to support prices. In the U.S., oil and gas activity in key states like Texas and Louisiana showed slight declines in the third quarter, adding to the nuanced supply outlook.

While prices are expected to remain supported in the near term, uncertainties surrounding U.S. Federal Reserve interest rate decisions and the global shift toward electric vehicles could cap further gains. For now, the market remains on edge, balancing supply disruptions against the backdrop of evolving demand and policy dynamics.