Morning highlights: Oil Jumps as U.S. Pursues Second Venezuela Tanker Seizure

Monday, December 22, 2025

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MARKET SNAPSHOT

Oil rallied on renewed Venezuela supply disruption fears. Brent crude gained $1.18 to $61.65/bbl, while WTI rose $1.10 to $57.62/bbl as of 6:30 AM EST. Both benchmarks fell roughly 1% last week.

"The market is waking up to the fact that the Trump administration is taking a hardline approach to Venezuelan oil trade" Venezuelan crude accounts for about 1% of global supply.

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TOP DEVELOPMENTS

U.S. Coast Guard Pursues Second Weekend Tanker

The U.S. Coast Guard is pursuing an oil tanker in international waters near Venezuela, which would mark the second such operation over the weekend and the third in less than two weeks if successful, officials told Reuters Sunday.

The pursuit follows Trump's announcement of a "total and complete" blockade of sanctioned Venezuelan oil tankers. Combined with reports of a Ukrainian drone strike on a Russian shadow fleet vessel in the Mediterranean, geopolitical supply risks are providing support to an otherwise fundamentally bearish market.

"Oil prices have thus been supported by this geopolitical news alongside the simmering Russia-Ukraine tensions in the background in an otherwise very bearish market fundamentally"

After initial skepticism about blockade enforcement, the Coast Guard's weekend operations demonstrate Trump is following through on threats. If interdictions continue at this pace, Venezuelan flows to China and other buyers could face meaningful disruption.

Ukraine Peace Talks: Mixed Signals

U.S. special envoy Steve Witkoff said Sunday that three days of talks in Florida between U.S., European, and Ukrainian officials focused on aligning positions, calling meetings with Russian negotiators "productive."

However, Putin's top foreign policy aide said changes made by Europeans and Ukraine to U.S. proposals had not improved peace prospects, injecting fresh uncertainty into negotiations.

Markets remain caught between hopes for a deal that would lift Russian sanctions and return supply, versus the threat of prolonged conflict or new U.S. sanctions on Russian energy if talks fail.

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EIA QUIETLY REWRITES OPEC CAPACITY ASSUMPTIONS

The Revision

The EIA updated how it defines and estimates OPEC crude oil production capacity in its December Short-Term Energy Outlook, resulting in material upward revisions:

• 2024: +220,000 bpd higher effective capacity

• 2025: +370,000 bpd higher

• 2026: +310,000 bpd higher

What Changed: The EIA refined two concepts used to assess supply risk. Maximum sustainable capacity is the theoretical upper limit a producer could reach within a year if everything runs smoothly. Effective production capacity is more practical, representing oil that could realistically be brought online within 90 days and sustained without damaging fields or infrastructure.

By tightening these definitions and reassessing disruptions, the agency concluded OPEC's buffer is larger than previously assumed. Because actual OPEC production estimates remained mostly unchanged, the revisions flowed almost directly into higher spare capacity estimates.

Why It Matters: Spare capacity serves as the oil market's shock absorber. When it's thin, prices react violently to wars, sanctions, hurricanes, or refinery outages. When it's fat, geopolitical risk carries less pricing power. The EIA is effectively telling the market that supply is less fragile than many traders believed.

OPEC+ Complications: This weakens OPEC's narrative of tight capacity used to justify production discipline. The group has leaned heavily on the idea of limited spare capacity, and while the EIA's recalculation doesn't destroy that argument, it does undermine it.

Bottom Line: The market may not be as close to the supply edge as previously thought. That's a bearish message for price outlook, especially given existing oversupply forecasts for 2026-2027.

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RUSSIAN LNG EXPORTS TO CHINA HIT RECORD

November Surge

Russian LNG exports to China more than doubled year-over-year in November to 1.6 million tons, overtaking Australian shipments and making Russia China's second-largest LNG supplier after Qatar, according to customs data cited by Bloomberg.

This breaks the previous record of 1.3 million tons set in September, up from 751,000 tons in September 2023.

Sanctions Defiance

Trade in LNG between China and Russia continues rising despite Western sanctions on Russian LNG producers. Arctic LNG 2 in Western Siberia began shipments earlier this year and has continued despite sanctions. Since June, operator Novatek has sold over 1 million tons from Arctic LNG 2, with cargo-loading accelerating markedly since August.

China has received at least ten LNG cargoes from Arctic LNG 2 as Beijing and Moscow grow bolder in defying Western sanctions. All Arctic LNG 2 exports have gone to China after China stopped buying U.S. LNG amid trade tensions.

New Milestone: A Chinese LNG tanker docked at Gazprom's Portovaya LNG terminal in the Baltic Sea on Friday, the first such move by China, Bloomberg reported. The Biden administration sanctioned the Portovaya terminal in January, but China has repeatedly indicated it doesn't recognize unilateral sanctions.

Russia-China energy ties continue deepening as both countries openly defy Western sanctions. This creates alternative export channels for Russian energy that will be difficult to disrupt and reduces the effectiveness of sanctions as a policy tool.

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BOTTOM LINE

Oil opened the holiday-shortened week with a geopolitical bid as the U.S. demonstrates serious intent on enforcing the Venezuelan tanker blockade. Weekend Coast Guard operations suggest this isn't just rhetoric, and continued interdictions could meaningfully disrupt the roughly 1% of global supply Venezuela provides. However, fundamental bearishness remains deeply entrenched. The EIA's quiet upward revision to OPEC spare capacity estimates tells the market that supply cushions are larger than believed, reducing the pricing power of geopolitical risks. This reinforces the oversupply narrative heading into 2026. Meanwhile, Russia-China energy trade continues thriving despite sanctions, with record LNG flows demonstrating the limits of Western pressure. Ukraine peace talks remain in limbo with mixed signals on progress. Brent reclaiming $61 and WTI above $57 provides technical relief after testing multi-year lows, but without sustained supply disruption or credible demand improvement, rallies likely remain selling opportunities. Expect thin, volatile holiday trading this week. The fundamental backdrop, wider OPEC spare capacity, mounting 2026 surplus forecasts, and weak Chinese demand, points lower despite short-term geopolitical noise.