Why Oil Just Got Hawkish Signals (And What It Means)

WTI crude jumped 1.39% on Tuesday—not because of stellar demand, but because EU diplomats are talking tough on Russia again. Kaja Kallas, the EU’s top diplomat, basically called Russia’s latest aggression (including the Poland incident) “terrorism,” fueling bets that energy sanctions will get tighter.

The Real Supply Crunch

Here’s the kicker: Russian crude exports just hit a 3-month low. Bloomberg tracked 3.36 million barrels per day in the four weeks ending November 16—down 90k bpd from the week before. Ukraine’s been systematic about it, taking out 13-20% of Russia’s refining capacity and hitting at least 28 refineries in three months. That’s cutting Russia’s production by roughly 1.1 million bpd.

The Bearish Counterplay

But hold up. The S&P 500 tanked to a 1-month low on Tuesday, triggering risk-off trading. US labor market data turned soft too—ADP showed employers cut 2,500 jobs/week on average through November 1. Weaker growth = weaker energy demand. That’s the real headwind.

Supply vs. Demand: The Plot Twist

OPEC just flipped its script. In October, they downgraded Q3 from a -400k bpd deficit to a +500k bpd surplus. US production is crushing expectations (now 13.59 million bpd), and OPEC itself ramped output—October hit 29.07 million bpd, the highest in 2.5 years. The IEA is already forecasting a record 4.0 million bpd global surplus for 2026.

OPEC+ pumped the brakes: they’ll add 137k bpd in December, then pause production hikes through Q1 2026. They still have 1.2 million bpd of cuts to roll back, but the momentum’s shifting.

What’s Actually Happening

US crude inventories are 4.1% below the 5-year seasonal average—tight. Gasoline’s 4% below average. But crude stored on tankers hit 103.41 million barrels (week ending Nov 14), the highest since June 2024—a sign the market’s bracing for oversupply.

The crude crack spread just hit a 19-month high, which is normally bullish (refiners buy more crude when they can profitably turn it into gas/diesel). But with geopolitical risks still simmering—Iran’s tanker grab in the Gulf of Oman, potential US military action on Venezuela (the world’s 12th-largest producer)—oil’s getting pinballed between supply anxiety and demand weakness.

Tuesday’s bounce was pure geopolitics. The real question: can sanctions actually move the needle when OPEC’s drowning the market in crude anyway?