A 6M barrel surprise: Why oil prices just surged despite Ukraine peace talks

Oil prices (Brent, WTI) rose over 1.5% on August 20, 2025, after a larger-than-expected draw in U.S. crude inventories sparked bullish sentiment among traders, while uncertainty over Russia–Ukraine peace talks kept the market on edge.

The U.S. Energy Information Administration (EIA) reported a 6 million barrel decline in domestic crude stockpiles for the week ended August 15. This was more than triple the analyst consensus estimate of a 1.8 million barrel draw, signaling stronger-than-expected demand from domestic refineries and overseas buyers. As a result, Brent crude settled up 1.6% at USD 87.12 per barrel, while West Texas Intermediate (WTI) gained 1.4% to reach USD 82.09.

According to commentary attributed to John Kilduff of Again Capital, the inventory data reflected robust refinery utilization and strong U.S. exports. He reportedly called the report “bullish for oil,” pointing to the widening spread between domestic supply and global demand.

What is driving the stronger-than-expected decline in U.S. crude inventories this August?

The EIA data showed that U.S. refiners operated at 94.7% of capacity last week, a strong performance typically seen during the summer driving season. Gasoline production also rose to 10 million barrels per day, while distillate output—used for diesel and heating oil—hovered at 5.2 million barrels per day. With refinery runs elevated and export volumes high, crude inventories at key hubs like Cushing, Oklahoma, have dipped more sharply than anticipated.

This steep draw signals a mismatch between oil input and replenishment rates, hinting at possible tightness in the near-term supply chain. Institutional analysts said that while refinery margins are holding steady, there is increasing concern about the sustainability of high output levels as hurricane season approaches the Gulf Coast. Weather-related risks could further distort inventory trends in the coming weeks.

How are investors interpreting the oil market impact of stalled Ukraine peace negotiations?

Investor sentiment remains sharply reactive to diplomatic developments in the ongoing Russia–Ukraine conflict. On August 19, oil prices had briefly dipped on hopes that new peace negotiations could enable partial easing of sanctions or permit limited Russian crude exports to return to global markets. However, by August 20, conflicting reports emerged regarding the progress and sincerity of the peace process.

Traders are now largely discounting the prospect of a near-term deal, especially as Western sanctions on Russian energy exports remain intact. According to institutional sentiment reported via Ritterbusch & Associates, “choppy” day-to-day oil trading is expected to continue as headlines from the Ukraine war disrupt market stability.

This geopolitical layer has added volatility, with every move in either direction on talks being interpreted through the lens of crude supply. With no clarity on the lifting of sanctions, the path of least resistance for prices appears to remain upward, at least in the near term.

What are the latest oil price levels and how are markets reacting to the supply-demand dynamics?

Brent crude futures are now trading near USD 87, climbing back toward their three-month highs after briefly retreating earlier in the week. WTI has regained momentum above USD 82, showing resilience even as macroeconomic pressures—such as rising interest rates and China’s economic slowdown—threaten to curb demand.

Commodity desks have raised short-term price targets for both benchmarks, citing sustained demand from non-OECD countries, tight U.S. crude balances, and tepid OPEC+ production increases. In particular, Indian and Chinese refinery purchases have absorbed much of the available Middle Eastern and Russian discounted crude, creating spillover demand for U.S. barrels.

The price reaction to the latest EIA data suggests that physical traders and futures markets alike are increasingly focused on tangible supply constraints rather than hypothetical macro risks.

How are energy stocks and oil-linked indices responding to the price movement this week?

Publicly traded oil and gas firms saw modest gains following the crude inventory report. On August 20, 2025, the Energy Select Sector SPDR Fund (NYSE: XLE) rose 0.9%, while independent producers like Occidental Petroleum Corporation (NYSE: OXY) and Devon Energy Corporation (NYSE: DVN) each posted gains of 1.2% and 1.5% respectively.

Institutional buying was observed in both upstream and midstream players, reflecting a favorable short-term outlook for earnings and cash flows. Analysts said investors were rotating into commodity-exposed equities after a subdued July, betting that oil price resilience could support dividend yields and share buyback programs across the energy sector.

However, futures positioning remains cautious, with hedge funds and CTAs reportedly trimming long positions slightly last week, likely due to geopolitical whipsaws and fears of overextension above the USD 90 mark for Brent.

Could geopolitical factors and domestic demand strength continue to support oil prices into September 2025?

Looking ahead, analysts expect the interplay between sanctions policy, OPEC+ output restraint, and U.S. demand strength to continue dominating oil market pricing. Unless a major de-escalation in Ukraine materializes or global growth forecasts deteriorate sharply, many now see Brent in a USD 85–90 channel heading into September.

The wildcard remains China. While Beijing has attempted several macro stimulus efforts to revive its slowing economy, actual crude import levels have yet to reflect a sustained rebound. If industrial and transportation fuel usage in China picks up in the next few weeks, it could add an incremental tailwind to global oil demand.

U.S. domestic factors, including a potential hurricane threat to Gulf Coast refining infrastructure and a possible pause in Strategic Petroleum Reserve releases, are also being closely monitored. Some institutional voices have noted that without the SPR’s stabilizing presence, price spikes could become more frequent this quarter.

Is this inventory draw a one-off, or a sign of deeper supply issues?

Analysts view that this week’s EIA draw is less about a one-off anomaly and more about a sustained structural imbalance. With refinery throughput running hot, export markets hungry, and inventories below seasonal averages, the oil market is showing the kind of tightness that tends to support prices even in the face of external shocks.

Unless diplomatic clarity emerges in Ukraine or China sees a major demand pullback, oil prices may remain on the firmer side through Q3 2025. Traders should remain alert for further inventory signals in the weeks ahead, as well as evolving geopolitical alignments around sanctions and global shipping routes.