If the fuel market feels unpredictable right now, that's because it is. Prices look soft, headlines feel heavy, and just when things seem calm, another geopolitical curveball appears. In the latest FUELSCast episode, Andy Milton, SVP of Supply at Mansfield Energy, laid out the tension clearly: the market looks bearish today, but the upside risks are never far away.

The underlying story is a familiar one that supply is growing faster than demand in the near term, but the system still feels fragile. Investment decisions, geopolitics, refinery capacity, and weather all have the ability to shift sentiment quickly.

STEO supports lower prices - with limits

The December 2025 Short-Term Energy Outlook (STEO) reinforces the near-term bearish narrative. The EIA expects global oil inventories to continue rising through 2026, putting downward pressure on prices. Brent crude, which averaged about $64 per barrel in November, is forecast to fall to around $55 per barrel in the first quarter of 2026 and remain near that level for the rest of the year.

However, the STEO also makes it clear that price declines are not expected to be unlimited. Two forces are expected to act as guardrails, and those are OPEC+ production policy and China's continued inventory builds. EIA expects OPEC+ to produce roughly 1.3 Mbpd less than its target in 2026, while China continues to add to its strategic stockpiles, both of which help absorb excess supply.

That aligns closely with Andy's view that the market feels bearish today, but structurally unstable if anything disrupts the balance.

Geopolitical factors continue to set the floor

Recent headlines underscore how quickly global risk can re-enter the conversation. The U.S. seizure of an oil tanker off the coast of Venezuela served as a reminder that energy markets remain tightly linked to geopolitics. Venezuela holds the world's largest crude reserves, and pressure on its exports is far more than one vessel; it's about long-term supply and political leverage.

At the same time, Russia remains a wild card. While drone attacks and sanctions have affected refining capacity, product continues to flow through alternative routes, particularly into China and India. As long as those barrels find a home, global supply remains intact, but any escalation or tightening of sanctions could change that quickly.

Gasoline demand has peaked; diesel is the watch product

Despite softer crude prices, diesel continues to behave differently. U.S. distillate inventories remain tighter than gasoline, and diesel futures are trading roughly 50 cents above gasoline.

Milton highlighted that imbalance clearly. "Distillate is more of a concern," he said. "It's the one product we still see growing annually in the U.S."

Refinery dynamics are adding to that pressure. The EIA expects refinery margins to remain elevated in 2026, despite lower crude prices, due to ongoing global product tightness, refinery outages, and geopolitical disruptions, particularly those related to Russia.

Winter risk and regional tightness

Winter introduces another layer of uncertainty, especially in colder regions. Milton pointed to early-season cold catching some regions off guard, particularly for kerosene (#1 diesel) used in winter blending. "If you're a consumer, have an additive on hand," he said. "Don't wait until the last minute."

While overall diesel supply is not at crisis levels, weather-driven demand spikes or logistics disruptions can create short-term price and availability issues.

Refinery closures complicate the outlook

The U.S. product markets face structural constraints, having lost refining capacity over the past year, with one refinery closing in October and another expected to close in April. Fewer refineries mean less flexibility when demand rises or supply is disrupted.

The STEO also highlights uncertainty around refinery margins. While crack spreads are expected to ease in early 2026, ongoing sanctions on Russia, refinery attacks, and shifting trade flows remain sources of upside risk for refined product prices, particularly diesel.

Energy demand growth extends beyond oil

The STEO makes it clear that energy demand growth is not slowing across the board. U.S. electricity generation is forecast to grow 2.4% in 2025 and 1.7% in 2026, driven largely by large power users such as data centers. Natural gas prices are expected to spike this winter due to colder weather, but are then expected to moderate in 2026 as production increases.

What it means for price strategy

The market may appear bearish today, and the EIA's forecasts support this near-term softness. But inventories, diesel fundamentals, refinery capacity, and geopolitics continue to limit how comfortable the outlook really is. As Milton put it, "The world is going to need crude." Prices may drift lower in the near term, but the market remains vulnerable to disruption, and history suggests that balance can change quickly.

Stay prepared and stay informed. Subscribe to our FUELSCast podcast channel for ongoing updates as the market continues to evolve.

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