Multiple Supporting Factors Underpin Oil Market Strength

Recent crude oil price movements underscore a complex interplay of geopolitical tensions, supply-side constraints, and shifting market dynamics. March WTI crude oil (CLH26) has advanced 0.45 points (+0.69%) while March RBOB gasoline (RBH26) gained 0.0193 (+1.00%), though both remain below Thursday’s session highs. The underlying drivers that underpin these gains reveal a market braced by multiple reinforcing pressures rather than a single dominant factor.

Geopolitical Tensions Support Price Floor

The Middle East remains a critical price driver. After President Trump warned Iran to negotiate a nuclear deal or face potential military action, crude prices initially rallied sharply on Thursday to a 4.25-month high. The stakes are substantial: an attack on Iran—OPEC’s fourth-largest producer—could severely disrupt crude supplies and potentially close the Strait of Hormuz, through which approximately 20% of global oil passes. However, subsequent indications that Trump had overnight discussions with Iran and expected negotiations to continue have moderated gains, with recent strength capped by a firmer US dollar.

Supply Restrictions Anchor Market Values

Beyond Middle East tensions, the Russia-Ukraine conflict continues to underpin a restrictive supply environment. The Kremlin’s recent dismissal of peace prospects—citing unresolved “territorial issues”—signals prolonged conflict and sustained limitations on Russian crude exports. Over the past five months, Ukrainian forces have targeted at least 28 Russian refineries, directly constraining Moscow’s export capabilities. Since late November, Ukraine has intensified attacks on Russian tankers in the Baltic Sea, striking at least six vessels.

Additional pressure comes from expanded US and EU sanctions targeting Russian oil infrastructure and shipping, further reducing global supply volumes. Separately, OPEC+ has committed to maintaining steady production levels, pausing the output increases it had announced for Q1 2026. The organization is attempting to restore the 2.2 million barrels per day (bpd) it cut in early 2024, though 1.2 million bpd remains unrestored. December OPEC crude production reached 29.03 million bpd, up 40,000 bpd from prior month.

Inventory Dynamics and Production Trends

Demand-side indicators present a mixed picture. As of January 23, US crude inventories sat 2.9% below the 5-year seasonal average—a tightness that supports prices. By contrast, gasoline and distillate inventories ran 4.1% and 1.0% above seasonal norms respectively, suggesting adequate refined product supplies. US crude production in the week ending January 23 slipped 0.3% to 13.696 million bpd, remaining modestly below the record 13.862 million bpd posted in November.

Oil rig activity has declined substantially over 2.5 years. The active US oil rig count stood at 411 in late January—just above the 4.25-year low of 406 rigs recorded in December 2019—a stark retreat from the 627-rig peak of December 2022. This reduced drilling activity suggests limited near-term production growth momentum.

Market Outlook and Forecast Adjustments

Supply outlook assessments have been revised downward. The International Energy Agency reduced its 2026 global crude surplus estimate to 3.7 million bpd in its latest report, down from the prior month’s projection of 3.815 million bpd. The EIA, meanwhile, raised its 2026 US crude production forecast to 13.59 million bpd (from 13.53 million bpd) but trimmed its 2026 energy consumption estimate to 95.37 quadrillion BTU from 95.68 quadrillion BTU.

Storage data adds another dimension. Vortexa reported that crude held on tankers idle for at least seven days fell 0.6% week-over-week to 113.30 million barrels in the week ending January 23, indicating reduced floating storage buffers. OPEC+ is scheduled to meet this Sunday to review output policy and is expected to maintain production steady, further cementing the structural supports that underpin current price levels.

Energy markets thus derive strength from a constellation of factors—geopolitical risk premiums, constrained supplies from conflict and sanctions, limited rig activity, and measured inventory balances—all combining to support crude valuations despite intermittent volatility driven by policy announcements and macroeconomic crosscurrents.