Multiple Factors Drive Crude Oil and RBOB Gas Higher Amid Middle East Tensions

Crude oil and gasoline futures posted gains on Friday, with February WTI crude advancing +0.25 points (+0.42%) and February RBOB gas climbing +0.0014 (+0.08%), as markets recovered from Thursday’s sharp decline. The price recovery reflects a complex interplay of geopolitical risks, production disruptions, and shifting demand dynamics that are continuing to underpin energy markets.

Geopolitical Risks Keep Prices Elevated

Ongoing instability in Iran remains a key price driver, with escalating unrest in the nation weighing on crude prices despite easing near-term expectations of direct US military intervention. As the fourth-largest OPEC producer generating over 3 million barrels per day, Iran represents a critical component of global oil supply. The situation has intensified with thousands of protesters demonstrating across Iranian cities against government policies that have triggered severe economic turmoil and currency depreciation. Security forces have suppressed demonstrations with significant casualties, prompting President Trump to signal potential military action if the government escalates violence.

Military positioning has reinforced crude’s upside. Fox News reported that the US is positioning an aircraft carrier strike group into the region, with additional military assets expected to shift to the Middle East in coming weeks. This follows earlier advisories for US personnel to evacuate from the Al Udeid Air base in Qatar—a facility previously targeted by Iranian retaliatory airstrikes following US attacks on Iranian nuclear infrastructure. Any escalation could disrupt Iran’s crude output, creating significant upside pressure on prices.

Supply-Side Headwinds Support Market Stability

Beyond Middle East tensions, multiple supply constraints are reinforcing the price floor. Drone attacks this week on oil tankers positioned near the Caspian Pipeline Consortium terminal on Russia’s Black Sea coast have slashed crude loadings by nearly 50%, reducing throughput to approximately 900,000 bpd. This disruption reflects the ongoing impact of Ukrainian strikes on Russian energy infrastructure, which have now targeted at least 28 refineries over four months while curtailing Russia’s export capabilities.

Recent US energy data underscores tightness in crude markets. EIA data as of January 9 showed US crude inventories sitting 3.4% below their 5-year seasonal average, signaling constrained supply flexibility. American crude output edged down 0.4% week-on-week to 13.753 million bpd, just shy of November’s record high of 13.862 million bpd. Meanwhile, Baker Hughes data revealed that active US oil rigs rose by one to 410 units—marking a modest recovery from December’s 4.25-year low of 406 rigs, though representing a sharp decline from December 2022’s 5.5-year peak of 627 rigs.

OPEC+ Production Strategy Provides a Balancing Act

OPEC+ reinforced its commitment to restraint on January 3, announcing plans to pause production increases throughout Q1 2026. While the cartel had authorized a +137,000 bpd boost in December, it will hold production steady through early 2026 as global oil surplus concerns mount. OPEC’s December output rose modestly by +40,000 bpd to 29.03 million bpd, while the organization works through the remaining 1.2 million bpd of its 2.2 million bpd production cut initiated in early 2024.

The IEA has flagged a record global oil surplus of 4.0 million bpd expected for 2026, a concern that has prompted OPEC+ to moderate its expansion plans despite international demand pressures.

Chinese Demand Provides Counter to Surplus Concerns

Asian demand momentum is offering offsetting support to prices. China’s crude imports in December are projected to surge 10% month-on-month to a record 12.2 million bpd as the nation rebuilds strategic reserves, per Kpler data. This represents the strongest import pace on record and provides tangible demand ballast against the emerging global surplus.

Storage dynamics also merit attention. Vortexa reported Monday that crude held in stationary tankers (idle for 7+ days) declined 0.3% week-on-week to 120.9 million barrels for the week ended January 9, suggesting steady market demand absorption.

Inventory Divergence and Production Outlook

The EIA’s latest report revealed a mixed domestic inventory picture. While crude stocks remain 3.4% below seasonal norms, gasoline inventories sit 3.4% above their 5-year average and distillate inventories are 4.1% below seasonal benchmarks. This uneven distribution reflects shifting refinery operations and product demand patterns.

On the production front, the EIA raised its 2026 US crude output estimate marginally to 13.59 million bpd from 13.53 million bpd, while paring back its energy consumption projection to 95.37 quadrillion BTU from 95.68 previously. These adjustments signal modest growth prospects tempered by cooling demand expectations.

The interplay of elevated geopolitical tensions, structural supply constraints, strategic reserve rebuilding by major consumers, and OPEC+ production discipline continues to anchor crude prices within a supportive trading range, even as longer-term surplus concerns begin to weigh on future valuations.