## Geopolitical Tensions as a Catalyst for Energy Price Growth

The oil market is demonstrating a visible reaction to the escalation of the situation in Iran. Protest movements in the country have caused a surge in quotes — February WTI crude oil futures rose by 3.10%, and RBOB gasoline contracts increased by 2.00%. Both instruments have recovered their monthly highs. Supply security is coming to the forefront, as Iran is a member of OPEC and produces over 3 million barrels daily. The US president issued serious warnings regarding the safety of protesters, and authorities have promised strict sanctions for property damage. Even minor destabilization in this region can impact global supply chains.

## US Economic Signals Reinforce Bullish Scenario

US data tell an important story for supporters of rising oil prices. Unemployment in December fell to 4.4%, defying analysts’ forecasts, while the University of Michigan’s consumer sentiment index for January reached 54.0 points. These indicators indicate consumer resilience and, accordingly, increase demand for energy resources. At the same time, the three-year crack spread maximum encourages refineries to expand crude oil purchases and accelerate the production of gasoline and distillates.

Another event could provide additional momentum: the BCOM and S&P GSCI indices are undergoing their annual rebalancing, which is expected to attract approximately $2.2 billion into oil futures over the next week, according to Citigroup. Despite the US dollar index trading at a four-week high, this factor does not hinder the growth of energy prices.

## Chinese Demand and Russia’s Actions: Nuances of the Global Architecture

China is replenishing its strategic reserves more actively than before. December crude oil imports exceeded the previous month by 10%, reaching a record 12.2 million barrels per day, according to Kpler. This maneuver reflects the strategic vision of Chinese leadership regarding energy security.

On the other hand, Ukrainian drones and missiles have struck at least 28 Russian oil refining complexes over four months, significantly limiting Russia’s export capabilities. US and EU sanctions on Russian oil logistics and tankers, with (at least six ships affected in the Baltic Sea since November), have further complicated the global balance.

## Why OPEC+ Stays on the Sidelines

The OPEC+ group has decided to continue the pause in production increases until the first quarter of 2026. Despite a slight increase of 137 thousand barrels per day in December, the organization is refraining from new steps. OPEC production reached 29.03 million barrels daily, but the organization is only restoring part of the previous cut of 2.2 million barrels, which took place at the beginning of 2024.

This conservatism is logical: forecasts indicate an approaching surplus. The IEA predicts a deficit of 4 million barrels per day in 2026, while OPEC revised its expectations for the third quarter, anticipating a surplus of 500 thousand barrels compared to a minimum of 400 thousand barrels a month ago.

## Consensus Remains Silent on Price Decline

Morgan Stanley officially downgraded forecasts due to concerns over weaker demand. The bank expects a significant global surplus, peaking mid-year. Accordingly, price targets have been revised: the first quarter below $57.50 per barrel (was $60), the second quarter will fall to $55 per barrel (also from $60). Saudi Arabia, a sentiment indicator, has lowered the Arab Light crude price for February shipments for the third consecutive month.

## US Production Holds Its Position

On the domestic front, the US shows resilience: crude production remained at 13.811 million barrels per day through the week ending January 2, nearly reaching the November maximum. EIA raised its forecast for annual production in 2025 to 13.59 million barrels daily. Active oil drilling rigs increased by three to 412 units, signaling a slow recovery after a 4.25-year low.

Reserves tell a mixed story: as of January 2, crude oil was 4.1% below the five-year seasonal average, gasoline was 1.6% above normal, and distillates were 3.1% below. This distribution reflects the complexity of the current market balance for energy resources.

## Summary: Oil Prices Under the Pressure of Contradictory Forces

Energy prices are at the crossroads of several vectors. Geopolitical instability and strong US economic indicators push prices upward, but confidence in an upcoming global surplus and the conservative stance of OPEC+ create resistance. The outcome will depend on whether regional tensions in Iran intensify and how quickly Chinese demand maintains its momentum.