Signs of tight oil supply emerge; can WTI crude oil break through the 59 level and become a key?

The strategic actions of the US government against Venezuela’s oil are reshaping the global energy landscape. According to the latest Reuters report, the White House has ordered the US military to fully push forward with an economic blockade on Venezuela’s oil within the next two months. This shift indicates that the Trump administration is prioritizing economic sanctions over military intervention. The decision has a substantial impact on the supply side of the oil market.

Venezuela, as the world’s second-largest oil producer, derives over 90% of its total exports from oil. If US sanctions continue to exert pressure, the International Energy Agency estimates it will severely weaken the country’s government finances. More intriguingly, local efforts are underway to utilize “zombie oil tankers”—old ships that fake identities and conceal actual routes—to continue secretly transporting oil. Bloomberg’s vessel tracking data shows that a 27-year-old oil tanker, originally scheduled for dismantling in 2021, recently sailed toward Venezuela, demonstrating the country’s persistence in maintaining its oil industry.

However, supply shocks may not necessarily push oil prices higher. The market generally believes that the global oil market is currently oversupplied. Data from the International Energy Agency indicates that due to increased production by oil-producing countries and a slowdown in global demand growth, the excess oil supply could reach an average of 4.09 million barrels per day by 2026. OPEC+ has announced a pause on production increases in the first quarter of 2026, further confirming market expectations of oversupply.

Macroeconomic Environment Provides Support for Oil Prices

The real upward momentum for the oil market instead comes from the combined effects of the Federal Reserve and the US dollar. US Department of Labor data from December shows that in November, CPI year-over-year rose by 2.7%, and core CPI increased by 2.6%, indicating continued easing of inflation pressures and paving the way for the Fed to further cut interest rates. Although non-farm employment increased by 64,000, slightly better than expectations, the unemployment rate unexpectedly rose to 4.6%, the highest since September 2021, reflecting a clear cooling of the labor market.

CME FedWatch Tool data shows that the market still expects two rate cuts next year, each by 25 basis points. A low-interest-rate environment is imminent. Meanwhile, the US dollar index is currently consolidating below 98.0, with the mid-term support/resistance line at 98.0. Once the dollar effectively breaks below this level, further downside potential will open up.

The combination of a weakening dollar and low interest rates should not be underestimated, as it will directly benefit the economic recovery of China, the world’s largest energy consumer. Looking ahead to 2026, under the US ALL IN AI strategy, overall liquidity is expected to remain loose. US Bank Global Research predicts that next year, investors will gain clearer insights into how artificial intelligence will reshape economic fundamentals, leading to stronger economic growth in both the US and China. The economic recovery of China coupled with dollar depreciation are likely to be the most solid supports for the oil market.

Technical Outlook Reveals New Rebound Opportunities

On Wednesday (December 24), WTI crude oil closed down 0.12%, ending a three-day rally but still stabilizing above $58.0. The daily chart shows that over the past two months, WTI has maintained support above $58.0, and the AO indicator indicates increasing upward momentum.

Once WTI breaks through the resistance at $59.0, a broader rebound pattern is likely to be established. Key resistance levels to watch are at $61.5 and $64.5. These technical signals, combined with geopolitical supply tensions and the macroeconomic environment of loose liquidity, provide multi-dimensional support for the continuation of the rebound in the oil market.