(Oil Price) – At the start of the year, sentiment in the oil market was overwhelmingly and deeply bearish. Most forecasts pointed to a glut, and a sizable one at that. Then the U.S. struck Venezuela, took its acting president to stand trial in the U.S., and threatened Iran, Mexico, and Colombia that they were next. Protests broke out in Iran. Saudi Arabia and the UAE took different sides in Yemen. Brent crude is already over $65 per barrel.
Geopolitics has always been a wild card for the oil market. There is always a potential for supply disruption in some large producers due to chronic political instability. Most frequently, that producer is Libya, but as we have seen this year, Middle Eastern petrostates are far from immune to the danger of disruption, even if it remains only hypothetical. Now, if physical market data suggests there is no supply overhang, prices could shoot up much higher.
Vortexa reported this week that crude oil on tankers that have been stationary for at least seven days—suggesting it is in storage rather than in transit from seller to buyer—had declined to 120.9 million barrels in the week to January 9, as reported by Barchart. This is a figure very different than the figure other outlets like to cite, namely, the total amount of crude on all tankers, regardless of purpose, which at the end of last year stood at around 1.3 billion barrels. The figure was cited as the highest since the 2020 pandemic lockdowns, implying that demand is being destroyed now as it was destroyed then.
There are, however, different reasons for demand destruction, not all of them organic. Bloomberg reported this week, for instance, that Russian oil exports have dropped by around 450,000 barrels daily over the four weeks to January 11. This was not the result of an organic decline in demand because India and China were electrifying at accelerated rates. This was the result of U.S. sanctions that entered into effect in late November and the additional threat of more tariffs on Indian imports unless refiners stopped buying Russian oil.
Yet there is a twist in this story, and that twist is that the 450,000-bpd decline over the four-week period to January 11 was only a 30,000-bpd decline for the period between Christmas and January 4, Bloomberg reported, adding that Russia’s total oil exports for the four weeks to January 11, at 3.42 million barrels daily, were in fact higher than the average for 2025. Demand, in other words, is rather healthy, especially for discount crude.
Speaking of discount crude, China seems to have lost much of its access to discount Venezuelan crude, although this may be temporary. The development puts China’s active stockpiling of crude last year in a new light, suggesting it could afford to wait and see how things turn out for the South American nation whose oil industry, per President Trump, will be now run by the United States, indefinitely. Right now, all eyes are on Iran and its protests, which are being cheered by both the European Union and President Trump. Revisions of oil prices have already started.
“Protests in Iran risk tightening global oil balances through near-term supply losses, but mainly through rising geopolitical risk premium,” Citi analysts said this week, as cited by Reuters, just two days after Goldman revised its own oil price predictions downwards yet again for this year, citing oversupply. The investment bank noted, however, that protests have not yet spread to Iran’s main oil-producing regions and added that “Current risks are skewed toward political and logistical frictions rather than direct outages, keeping the impact on Iranian crude supply and export flows contained.”
Earlier in the week, though, ANZ analysts wrote in a note that protesters were calling on oil industry workers in Iran to join the protests. “The situation puts at least 1.9 million barrels per day of oil exports at risk of disruption,” the bank said.
Saxo Bank’s head of commodity strategy Ole Hansen wrote earlier in the week that oil traders were strongly bearish on oil, warning that “This leaves the market vulnerable to a rebound should either the technical or fundamental outlook improve.” Hansen cited a Goldman Sachs survey suggesting institutional investors were growing cold to oil in further evidence of the dominant bearish mood on the market, but noted that over the short term, geopolitical events could boost prices.
In further bullish news from the geopolitical world, two tankers in the Black Sea were hit by a drone attack, according to a Reuters report that cited unnamed sources. The vessels were en route to a loading point for the Caspian Pipeline Consortium, which last year became a target for Ukrainian drone strikes. There have been no comments as to the perpetrator of that strike, with Reuters saying the Ukrainian government declined to comment, as did the company operating the CPC. The fact of the strike, however, once again highlights geopolitical risks that until very recently were summarily ignored in favor of glut forecasts.
By Irina Slav for Oilprice.com
