Crude oil prices are in retreat after rising on the possibility of U.S. strikes on Iran. Before the retreat, however, Brent crude and WTI had jumped to the highest in months, countering bearish forecasts for the year—and tearing traders between geopolitics and fundamentals.
In fundamentals, the majority of observers and forecasters are unanimous that the supply of crude oil is substantially higher than demand. In fact, Goldman Sachs recently revised its price predictions for 2026, saying it now expected Brent crude to go even lower after shedding about a fifth of its value last year.
“Rising global oil stocks and our forecast of a 2.3mb/d surplus in 2026 suggest that rebalancing the market likely requires lower oil prices in 2026 to slow down non-OPEC supply growth and support solid demand growth, barring large supply disruptions or OPEC production cuts,” Goldman said earlier this week—even though protests in Iran were already making headlines and pushing the benchmarks higher.
On the other hand, the effective takeover by the United States of Venezuela’s oil industry has had an understandably bearish effect on prices. This week, a Washington official told media that the U.S. has sold the first batch of Venezuelan crude for $500 million, and more sales would follow. In terms of fundamentals, this strengthens the case for a bearish mood. However, statements by oil industry executives urging caution about the possibility of a quick turnaround in Venezuelan oil production have had a restraining effect on that mood.
Meanwhile, drone strikes on three tankers in the Black Sea fueled a new bout of supply disruption concern, to add to expectations of possible disruption in Iranian oil flows abroad. A Reuters report cited an unnamed source as saying Kazakhstan had suffered a 35% drop in its oil output over the first two weeks of January because of attacks that also included strikes on the Caspian Pipeline Consortium by Ukrainian forces. Kazakhstan has called on the United States and the European Union to help secure oil transport in the Black Sea.
Speaking of the European Union, reports emerged this week saying Brussels was planning a further cut in its price cap for Russian oil in a bid to reduce Russia’s oil revenues by tying Western insurance coverage to the price cap. The new level of the price cap will be set at $44.10 per barrel from next month. So far, the price caps have failed to cause much pain to the Russian budget, but the EU considers them a working mechanism to hurt Russia’s economy in a bid to make it withdraw from Ukraine.
Perhaps the most bullish development for oil from the past few days was the signal, from President Donald Trump, that he was not excluding the possibility of a military strike against Iran. That signal, however, has been quite quickly replaced by observations by the U.S. president that the Iranian government was easing its crackdown on the protesters, reducing the likelihood of a military strike. That’s when oil’s retreat began and continues today, in evidence that the glut narrative holds sway over the oil market.
Expectations of further growth in oil production remain dominant on that market, with forecasters such as the U.S. Energy Information Administration and the International Energy Agency both predicting further supply growth, even as OPEC pauses its unwinding of production cuts implemented back in 2022 to prop up prices. Even so, shale drillers are signaling they would not be happy with WTI closer to $50 than to $60, and production growth is slowing. Indeed, the EIA forecast in its latest Short-Term Energy Outlook that U.S. oil production will flatten this year, even inch down and extend that decline into 2027.
This has been ignored by the oil market so far, even though U.S. oil production has been the main driver behind bearish market predictions thanks to its fast and significant growth. That growth is now gone but everyone seems to be ignoring the fact in the firm belief there is already too much oil in the world—and the data seems to support this, with media citing a Kpler calculation there were some 1.3 billion barrels of crude on water in December, which was the highest since 2020 and the pandemic lockdowns.
Reuters’ Ron Bousso, however, noted in a recent column that a quarter of that oil comes from Russia, Iran, and Venezuela—the sanctioned producers. That oil takes longer to find buyers because of the sanctions but it does find buyers, Bousso pointed out. This suggests the number of barrels on tankers is not necessarily the most accurate indication of a physical glut, especially in light of recently released Chinese import data, showing oil imports into the country hit a record both in December and in 2025 as a whole. Predicting oil prices is notoriously unreliable. These days it is even more unreliable than usual, it seems, as conflicting narratives and agendas keep clashing, making the oil market a confusing place to be.
By Irina Slav for Oilprice.com
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