Geopolitical Tensions Keep Oil Markets Elevated on Lingering Middle East Concerns

February WTI crude oil futures gained +0.71 points (+1.20%) today, while February RBOB gasoline rose +0.0136 (+0.76%), as both energy markets rebounded from Thursday’s steep decline. Though immediate threats of US military action against Iran have diminished, lingering geopolitical risks remain a key price driver as Washington strengthens its military footprint across the region. The US is repositioning an aircraft carrier strike group toward the Middle East, with additional military assets expected to deploy over the coming weeks.

Regional Instability and Oil Supply Concerns

Iran, OPEC’s fourth-largest producer, generates over 3 million barrels per day. Escalating civil unrest—with thousands protesting economic collapse and currency crisis—has intensified security responses and raised questions about production continuity. President Trump indicated potential military intervention if government crackdowns on protesters persist. Should protests intensify or military strikes target Iranian infrastructure, crude supplies could face significant disruption. Reuters reported that some US military personnel have been advised to depart Al Udeid Air base in Qatar, a facility previously targeted by Iranian retaliatory strikes.

Pre-weekend short covering in crude futures is adding upward momentum amid these lingering tensions, even as the immediate shock has subsided.

Supply Chain Disruptions Beyond Iran

Additional pressure on global crude availability stems from drone and missile attacks targeting Russian infrastructure. Ukrainian forces have damaged at least 28 Russian refineries over four months, constraining Moscow’s export capacity. Recent tanker attacks in the Baltic Sea—at least six vessels struck since late November—have further reduced available transport. US and EU sanctions on Russian oil companies, infrastructure, and shipping have compounded export challenges.

Meanwhile, drone strikes near the Caspian Pipeline Consortium terminal on Russia’s Black Sea coast have cut crude loadings nearly in half to approximately 900,000 bpd. Vortexa data showed that floating crude oil inventories (stationary for 7+ days) declined -0.3% week-over-week to 120.9 million barrels in the week ending January 9.

Demand Resilience from China

Counterbalancing supply concerns, Chinese crude imports showed robust strength. Kpler reported that December crude imports are projected to surge +10% month-over-month to a record 12.2 million bpd as China restocks its strategic reserves. This demand resilience has provided meaningful support to prices.

OPEC+ Production Strategy

On January 3, OPEC+ reaffirmed its commitment to pause production increases throughout Q1 2026. While the group approved a +137,000 bpd production rise for December, the subsequent pause reflects concerns about emerging global oversupply. OPEC+ continues its multi-year restoration of the 2.2 million bpd cut implemented in early 2024, but approximately 1.2 million bpd remains unrestored. OPEC’s December production increased +40,000 bpd to 29.03 million bpd.

Surplus Forecasts and US Production Trends

The International Energy Agency projects a record global crude surplus of 4.0 million bpd for 2026, which has widened IEA’s 2026 forecast to 3.815 million bpd from 2.0 million bpd projected for 2025. The EIA raised its 2026 US production estimate to 13.59 million bpd (from 13.53 million), while lowering energy consumption forecasts to 95.37 quadrillion BTU from 95.68.

Inventory and Rig Activity Update

EIA data as of January 9 revealed that US crude inventories sat -3.4% below the 5-year seasonal average, gasoline inventories ran +3.4% above average, and distillate inventories fell -4.1% below seasonal norms. US crude production for the week ending January 9 declined -0.4% week-over-week to 13.753 million bpd, marginally below the November 7 record of 13.862 million bpd.

Active US oil rig counts fell by -3 to 409 rigs for the week ending January 9, hovering just above the 4.25-year low of 406 rigs from December 19. Over 2.5 years, rig activity has contracted sharply from the 5.5-year high of 627 rigs reported in December 2022, signaling ongoing industry caution despite elevated crude prices.