Morning Highlights: Oil Falls on U.S. Inventory Build Expectations Despite Kazakh Outage, CPC Repair Progress

Wednesday, January 21, 2026

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MARKET SNAPSHOT

Oil declined as expectations of rising U.S. crude inventories outweighed the temporary Kazakh field shutdown and Greenland tariff tensions. Brent fell $0.55 (0.9%) to $64.37/bbl, while WTI dropped $0.51 (0.7%) to $59.85/bbl as of 5:45 AM EST. Both contracts closed about 1.5% higher Tuesday after Kazakhstan halted output at Tengiz and Korolev.

"The oil output halt at Tengiz and Korolev is temporary, and downward pressure from an expected rise in U.S. crude inventories along with geopolitical tension will persist," said IG's Tony Sycamore.

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TOP DEVELOPMENTS

CPC TERMINAL: SPM-3 MAINTENANCE NEARING COMPLETION, SPM-2 BEYOND REPAIR

Repair Progress: The Caspian Pipeline Consortium said maintenance on single point mooring SPM-3 at its Russian Black Sea terminal near Novorossiysk is in final stages, while preparations are underway to dismantle SPM-2, which was severely damaged by the November 29 Ukrainian naval drone attack.

The System: The CPC terminal has three SPMs (floating buoys located 5km from shore). Two normally operate while one serves as backup. The system handles roughly 1.5% of global oil supply and about 80% of Kazakhstan's crude exports.

Timeline & Damage:

• SPM-3: Under planned maintenance since mid-November, including partial replacement of subsea hoses and loading arms amid rough weather

• SPM-2: CPC concluded Tuesday it's beyond repair and must be dismantled and replaced

• Combined impact: Only one SPM operational since late November

Impact Quantified:

• CPC oil exports: Down 24% month-over-month in December

• Kazakhstan's crude production: Down 35% in first 12 days of January

• December diversions: Kazakhstan redirected 300,000 metric tons away from CPC

Additional Disruptions: Unidentified drones struck at least two oil tankers in the Black Sea last week, including one chartered by Chevron, as they sailed toward the terminal.

Ownership: CPC's 1,500-km pipeline shareholders include Kazakhstan's Kazmunaygas, Russia's Lukoil, and units of Chevron and ExxonMobil.

Bottom Line: SPM-3 returning to service soon will restore two of three SPMs to operation, significantly easing the export bottleneck. However, SPM-2 being beyond repair means the system will operate at 2/3 capacity (two SPMs instead of the normal two operating plus one backup) until a new SPM is built and installed, which could take months or years. The 24% December export decline and 35% early January production drop demonstrate the real impact of infrastructure constraints we've been tracking.

Tengiz Shutdown: 7-10 Days Expected

Oil production at Tengiz and Korolev could be halted for another 7-10 days, three industry sources told Reuters. This provides clarity on the outage duration for fields producing roughly 840,000 bpd (40% of Kazakhstan's 2.1 million bpd output).

Context: A 7-10 day shutdown represents meaningful but temporary supply removal. At 840,000 bpd, this equates to 5.9-8.4 million barrels of lost production. The market's bearish response suggests traders view this as manageable within the broader 3.69 million bpd surplus context.

U.S. Inventory Build Expected

U.S. crude and gasoline stockpiles are expected to have risen last week, while distillate inventories likely fell, a preliminary Reuters poll showed Tuesday. Six analysts estimated crude inventories rose by about 1.7 million barrels in the week to January 16.

API weekly data is due 4:30 PM EST Wednesday, with EIA figures due 12 PM EST Thursday, both delayed a day due to Monday's federal holiday.

Continued inventory builds reinforce the bearish fundamental narrative. Last week, the EIA reported the biggest crude stocks build since November with imports hitting a 14-month high, adding pressure.

Trump Doubles Down on Greenland Tariffs

Trump said Tuesday there was "no going back" on his goal to control Greenland. Last week he vowed to implement a wave of increasing tariffs on European allies (Denmark, Norway, Sweden, France, Germany, Netherlands, Finland, Britain) until the U.S. is allowed to buy the Arctic island.

"The increased geopolitical tensions, which add pressure to oil markets as tariffs could slow economic growth, were adding to risk-off sentiment," said UBS analyst Giovanni Staunovo.

Bottom Line: The tariff threats are bearish for demand outlook by potentially slowing economic growth, offsetting any supply-side support from geopolitical tensions.

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IEA REVISES 2026 DEMAND HIGHER, SURPLUS NARROWS SLIGHTLY

Upgraded Forecast: The IEA revised its 2026 global oil demand growth higher in Wednesday's monthly report, suggesting a slightly narrower surplus for the market this year.

New Numbers:

• 2026 demand growth: 930,000 bpd (up from 860,000 bpd previously)

• Implied 2026 surplus: 3.69 million bpd (narrowed from 3.84 million bpd in December report)

While the upgrade is modestly bullish, a 3.69 million bpd surplus remains massive and aligns with Goldman's 2.3 million bpd forecast and Morgan Stanley's 3 million bpd H1 2026 estimate. The IEA's surplus is larger than both, suggesting the most bearish view among major forecasters. The 70,000 bpd upward demand revision and 150,000 bpd narrower surplus are marginal changes that don't alter the fundamental oversupply picture.

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IRAN RISK REMAINS BACKSTOP

While inventory growth is negative for prices, Eurasia Group's Gregory Brew said the potential for U.S.-Iran tensions to re-escalate would be supportive. Trump threatened to strike Iran over its violent crackdown on anti-government protests earlier this month before backing off when Iran said it would stop killings.

The Iran risk premium that drove Brent to $66.50 has largely evaporated, but the situation remains volatile and could flare up again.

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BOTTOM LINE

Oil is giving back Tuesday's 1.5% gain as the market refocuses on bearish fundamentals. Expected U.S. crude inventory builds (1.7 million barrels), continued high imports, and the IEA's massive 3.69 million bpd 2026 surplus forecast outweigh the Tengiz shutdown. The 7-10 day outage timeline for Tengiz/Korolev clarifies that while meaningful (5.9-8.4 million barrels of lost production), this is temporary and manageable within the broader surplus context. CPC terminal news is mixed: SPM-3 repairs nearing completion will ease the export bottleneck that caused 24% December export declines and 35% early January production drops. However, SPM-2 being beyond repair means the system operates at 2/3 capacity long-term until replacement. The IEA's demand upgrade (70,000 bpd higher) and narrower surplus (3.69 vs 3.84 million bpd) are marginal improvements that don't change the bearish picture. Trump's Greenland tariff threats add demand-side risk by potentially slowing economic growth. Brent at $64.37 and WTI at $59.85 keeps both in the middle of expected ranges, but the bias remains lower absent sustained supply disruption. Watch today's API data and tomorrow's EIA report for confirmation of inventory builds. The Tengiz outage will support prices for another week, but once production resumes and CPC's SPM-3 returns, the path follows Goldman's trajectory toward $54 Brent by Q4 2026. The market is clearly prioritizing the 3.69 million bpd surplus over temporary supply disruptions.