EIA Outlook: Oil prices are expected to be under pressure over the next two years as global production growth outpaces demand. Analysts predict an oversupplied market due to slowed demand growth in major energy-consuming countries like the U.S. and China. U.S. oil production is expected to reach a record 13.55 million barrels per day in 2025, with the Permian Basin contributing a growing share of output. Global oil production is forecast to rise to 104.4 million barrels per day in 2025, while demand is expected to fall slightly to 104.1 million barrels per day.

Peru Crude Oil: Peru's Bretaña crude oil, a rare heavy sweet crude, is gaining traction in the U.S. as refiners look for alternatives to declining Mexican heavy crude. The first shipment to the U.S. Gulf Coast arrived in Houston on January 2, transported by the Radiant Pride with 300,000 barrels, and was purchased by Shell. This shift is driven by reduced Mexican oil exports due to falling production, with Bretaña making inroads on the U.S. West Coast since 2020. Despite transportation challenges due to pipeline issues and social unrest, PetroTal, the field's operator, continues to focus on expanding production, although logistical and permitting delays remain obstacles.

Russian Artic Oil: U.S. sanctions on Russian Arctic oil infrastructure, including tankers and storage depots, are severely disrupting Russia's oil exports, especially from Arctic fields like Novy Port, ARCO, and Varandey, which account for around 300,000 barrels per day. These sanctions target key producers Gazprom Neft and Surgutneftegas, as well as vessels specialized for Arctic conditions, leaving millions of barrels of crude in storage and potentially reducing output. The disruptions are causing difficulties in finding replacement vessels, as the shuttle tankers are uniquely designed for Arctic operations and cannot be easily substituted. As a result, major Asian buyers like India and China are shifting away from Russian Arctic oil, which could lead to higher prices for alternative light oil grades, like U.S. WTI.

Market Overview: Oil prices are edging higher on Wednesday, driven by concerns over potential supply disruptions from new U.S. sanctions on Russian tankers, although the market remained uncertain about their full impact. The International Energy Agency (IEA) warned that these sanctions could significantly affect Russian oil supply, but the extent of the disruption remains unclear. Additionally, a drop in U.S. crude oil stocks and the prospect of a stockpile draw helped support prices, while OPEC projected global oil demand would rise by 1.43 million barrels per day in 2026. The market is closely watching whether the loss of Russian supply can be offset by other producers, as alternative measures are still uncertain.

U.S. retail gasoline prices in the EIA forecast are mostly lower in 2025 and 2026 than they were in 2024, when the retail price averaged about $3.30 per gallon. The EIA forecasts average U.S. gasoline prices in 2025 will decrease by more than 10 cents/gal on an annual basis, down about 3% from 2024. In 2026, the EIA forecasts a further decrease of almost 20 cents/gal, or an additional 6%. Retail gasoline prices decreased in both 2023 and 2024, after increasing substantially in 2022. On both a nominal and percentage basis, the EIA estimates the price decreases in 2025 and 2026 will be smaller than the decrease between 2022 and 2023 (when prices fell 11% year on year).

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Oil prices increased by over 2% on Wednesday, driven by a significant drop in U.S. crude stockpiles and fears of potential supply disruptions due to new U.S. sanctions on Russia. U.S. crude oil inventories fell to their lowest levels since 2022, with a rise in exports and a drop in imports contributing to the reduction. The latest round of U.S. sanctions on Russian oil raised concerns about potential supply issues, while tankers carrying Russian crude struggled to offload, further tightening the market. The announcement of a ceasefire deal between Israel and Hamas eased fears of supply disruptions in the Middle East, limiting the overall price gain. Additionally, a weaker U.S. dollar, driven by higher-than-expected consumer price data, provided some support to oil prices, with expectations for lower interest rates bolstering economic growth prospects.