Oil prices slumped below $60 a barrel this week as investors try to make sense of US President Donald Trump’s push to end the war in Ukraine and force out illegitimate Venezuelan President Nicolas Maduro. Yet the real driver of prices in the months ahead is likely to be far more prosaic: a spike in global crude supplies, both on land and at sea.
Global benchmark Brent crude oil futures plunged by nearly three per cent on Tuesday to below $59, their lowest since early 2021, amid growing optimism that a peace deal was in sight nearly four years after Russian President Vladimir Putin’s full-scale invasion of his western neighbour.
Prices then rebounded by around two per cent on Wednesday after Trump said in a post on his social media platform that he had ordered a blockade of all sanctioned oil tankers entering and leaving Venezuela as the US ramps up pressure on Maduro.
Oil is a reliable barometer of geopolitical stress, so it’s no surprise to see prices react to events. But the impact of either a Ukraine peace deal or a Venezuela blockade on physical supply is likely to be limited. The real determinant of oil prices in the coming months may instead be a single data point: 1.3 billion barrels of "oil on water" - crude held at sea, according to Kpler.
That is the largest volume since April 2020, when oil consumption cratered due to Covid-19 lockdowns, and about 30 per cent higher than August levels. Meanwhile, the volume of oil stored on tankers for at least 20 days has reached 51 million barrels, the highest since June 2023, according to Kpler. Slowing tankers provide more evidence that supply is struggling to find a home.
The average speed of laden crude tankers, excluding floating storage, fell to 10 knots (19 kilometres per hour) in December from 10.3 knots in November - the slowest since at least 2017, according to Muyu Xu, senior crude analyst at Kpler. This spike in supplies on water is partly due to tightening sanctions on Moscow.
Seaborne Russian crude in transit this week was about 155 million barrels - roughly 55 per cent higher than in January - as Asian buyers hesitate to bring those barrels onshore after new US sanctions on Russian energy giants Rosneft and Lukoil.
Yet history suggests sanctioned barrels don’t stay on water forever. They eventually land somewhere after being blended, rebranded, or transferred ship-to-ship. Early signs already show Chinese and Indian refiners increasing purchases, likely at steep discounts.
Crucially, tanker-borne volumes have risen sharply even when excluding Russian barrels. Higher output in the Western hemisphere - particularly the US - and in the Gulf after OPEC+ scaled back earlier cuts is adding to the flow. This looming supply overhang should weigh heavily on oil prices for the foreseeable future, barring a dramatic change in the physical market.
So what would be the market impact of either a ceasefire in Ukraine or a full blockade of Venezuela’s sanctioned oil? A Ukraine ceasefire would likely show up more in the diesel market than in crude prices.
Russian diesel exports have fallen about 10 per cent throughout 2025 to 779,000 barrels per day, roughly 10 per cent of global trade, according to Kpler, largely due to Ukrainian drone attacks on Russia’s refineries.
That decline helped propel European diesel margins up 27 per cent this year even as crude prices fell 20 per cent, LSEG data shows.
Ending the conflict could eventually allow Moscow to repair refining infrastructure repeatedly knocked out by Ukrainian drone strikes this year, easing domestic fuel shortages and boosting diesel exports. That, in turn, would trim diesel refining margins.
Crude is a different story. Russian oil exports have held remarkably steady at around 3.5 million bpd since the 2022 invasion. Western sanctions have targeted Moscow's revenue more than its volumes, for fear of spooking global markets.
Russia’s growing “shadow fleet” of hundreds of tankers operating outside the Western financial system has also allowed crude to leak through the cracks, landing mostly in China and India.
Over in Venezuela, the conflict is quite different but the likely impact on crude prices is similar. A US naval blockade on sanctioned tankers could reduce the country’s exports and production by roughly 500,000 bpd, according to Reuters calculations.
That is significant for Maduro’s finances but barely a rounding error in a 100-million-bpd global market.
News out of Russia and Venezuela may continue to cause crude prices to wobble at the margins, but this will be overshadowed by the much larger threat: swelling global supply. The International Energy Agency forecasts supply will exceed demand by 3.85 million bpd in 2026, the equivalent of around four per cent of global demand.
OPEC analysts expect the market to be far more balanced next year, but their scenario assumes a significant bump in demand.
The evolution of oil prices next year will largely depend on whether the current signs of a looming glut intensify or fizzle out. Geopolitical crises are playing a role, but they are no longer the main event.
(Ron Bousso Editing by Marguerita Choy)
