(Jan 30): It was supposed to be the year of glutted oil markets and lower prices, but the first weeks of 2026 have instead been dominated by geopolitical spikes and supply disruption, powering futures to US$70 a barrel.
President Trump’s threats to attack Iran have injected several dollars of geopolitical risk premium into crude — now at US$7 to US$10 a barrel, according to Citigroup Inc — just weeks after the US removed Nicolás Maduro as Venezuela’s head of state. In a year where many had expected crude in the US$50s, options traders have been busy placing bets on a rally above US$90.
Supplies have been tighter than expected, too. Outages from Kazakhstan to Libya, as well as a severe winter storm in the US, have lowered the availability of crude in key pricing locations. Most traders and analysts still see production exceeding consumption globally, but not where it’s most visible: Western storage hubs. They point instead to the build up of sanctioned Russian supply at sea — barrels that exist, but that only a few nations are willing to buy — and China mopping up much of the excess.
The result is an oil market that’s been caught off guard and has surprised Wall Street analysts. Traders amassed record bearish wagers on the global Brent benchmark towards the end of the year. Instead, futures are up 15% so far in January, heading for the biggest monthly increase since January 2022 in a period when the Opec+ alliance, which meets on Sunday, is keeping output steady.
When and whether prices come back down will be driven heavily by President Trump’s next moves on Iran.
See also: Exxon beats estimates as growth, refining cushion oil drop
“We have very little reason to fundamentally change the story, but you do also have to consider the geopolitical risk,” Martijn Rats, global oil strategist at Morgan Stanley, said in an interview. “You had almost nothing that built in the core OECD pricing centres and so a lot of the bearish impact of this surplus has been shielded.”
For much of 2025, the oil market’s surplus largely washed up into storage tanks and caverns in China, the world’s largest importer. That trend is likely to continue this year — averaging 300,000 barrels a day, according to Vortexa Ltd analyst Emma Li — although details of the stockpiling programme aren’t yet clear.
In December, more than 13 million barrels a day of crude arrived on China’s shores, the most on record, according to government data.
See also: Trump threatens tariffs on countries that send oil to Cuba
The figures bolstered some traders’ conviction that Beijing will likely be there to soak up any of the market’s excess barrels, limiting stockbuilds in places like Cushing, Oklahoma, where US crude futures are priced.
India, too, has been a bigger buyer of non-Russian barrels, pushing demand for oil in visible pricing centers higher. Indian Oil Corp — the nation’s largest refiner — has been more active than usual in hoovering up supplies for immediate delivery from the Middle East, West Africa and Latin America.
The switch may have staying power too. Bharat Petroleum Corp, a smaller state-run refiner, sought to lock in long-term volumes of Middle Eastern crude, another sign of a pivot away from Moscow.
Wrong-Footed
Brent futures have averaged US$64.69 a barrel in London this month, surpassing the first-quarter forecasts of major Wall Street banks, who at the end of last year were generally anticipating levels closer to US$59 between January and March. Some have since nudged their estimates higher.
“The surplus is much less than expected,” said Tor Svelland, founder of commodity and shipping focused hedge fund Svelland Capital. “Many have been waiting for the sell off and did not see strong demand from India and China.”
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The conundrum faced by oil markets perhaps shows up best in the amount of crude oil sailing on tankers at sea.
Currently, it’s about 200 million barrels higher than it was a year ago, an increase that would normally lead to pressure on crude prices. But about 100 million barrels of is driven by just Iran and Russia, according to data from Vortexa, two countries whose output is discharging more slowly because of sanctions.
Big swings
The scale of oil’s rally has been compounded by financial flows. Over the course of January, algorithmic traders swung from being extremely bearish to turning close to their maximum bullish positions, exacerbating the move higher, according to data from Energy Aspects Ltd.
The consultant says the risk now is that those traders rapidly reverse their positions if prices fall, potentially exacerbating any declines.
Disrupted supplies are slowly coming back too. Kazakhstan expects its giant Tengiz oil field to reach full production in a week after fires at power transformers caused a production halt. The country’s exports have been blighted by a combination of bad weather, drone attacks and maintenance that have significantly tightened European supplies.
A severe winter storm that swept the US over the weekend disrupted producers and refineries while boosting heating demand. Winter Storm Fern shut in close to 2 million barrels a day of American oil production at its peak, Energy Aspects estimates and another cold snap is on its way to the US.
“All these are leading to some short-term tightness,” Lane Riggs, chief executive officer of US oil refiner Valero Energy Corp, said on an earnings call on Thursday, referring to supply outages in Kazakhstan and the US. “Plus the geopolitical factor that’s kind of running up oil here in the short-term.”
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