Commodity Watch: Could Crude be Making a Comeback?
This move follows ongoing geopolitical tensions, news and/or events (the US - “Venezuelan incident”, Iran tensions, etc.) and short-covering before the long weekend – these factors are fundamentally driving prices.
On a technical basis, both benchmarks have broken above the prior highs at around $63 (BRENT) and $59 (WTI). Week-on-week they're both up by 1% (BRENT 1.2%, WTI 0.9%), month-on-month they are up roughly +8%, yet year-over-year they remain down about –19% and (BRENT) and –22% (WTI), reflecting how far prices fell in 2025.
From this, it can be observed that Crude is slowly clawing back from its lows but still sits well below 2024 levels. The rally is modest, and held by short-term factors, and not yet a broad breakout.
A Widening Spread and Higher Prices:
Below is a Reuters chart of the Brent–WTI spread over early Jan shows the discount widening to ~$4.7 per barrel.
Spread Analysis:
The widened BRENT–WTI spread, indicates that WTI trades about $4–5 below BRENT, up from roughly $3–3.5 in late December. US futures were about a $4.76 discount to BRENT as of Jan 13 – the widest in months – suggesting US crude (and products) may flood export channels soon.
A wide spread is pivotal, and can be either a bullish signal or bearish hinting at market “overbought” conditions in BRENT or oversupply in WTI. In plain terms, part of the spread widening reflects anticipation of more Venezuelan and Iranian barrels hitting global markets. Chevron’s expanded Venezuela license and potential influx of crude is already weighing on WTI and this could cap further gains.
If the spread stays elevated, we’d interpret it as a sign the rally has run hard on that factor – a near-term pullback could follow even if longer-term fundamentals turn supportive.
Below is a Reuters infographic summarizing key events that have influenced BRENT oil in 2025 – from sanctions and tariffs to Middle East conflicts.
(Timeline of events driving Brent crude in 2025 (Reuters))
From the chart, the most notable points include US sanctions on, Russia, the Venezuela/Iran event and OPEC+ pause on output changes. These geopolitical moves have kept some supply offline and injected volatility into prices.
Supply-Side Constraints Providing Support:
Much of the support at these price highs comes from supply-side constraints. Venezuela’s oil remains largely offline due to US sanctions and the recent power shift. Roughly 0.6 million barrels per day of Venezuelan output is still shut-in under current policies.
Though Washington moves to ease sanctions (e.g. broadening Chevron’s license), major oil companies are not rushing in. Big Western producers like Exxon and Total have repeatedly warned that Venezuelan crude requires huge infrastructure investment and regulatory clarity before they’ll increase production. In essence, the “Venezuelan flood” is delayed, helping support prices for now.
On the OPEC+ side, producers have largely held output steady. Then bloc agreed to pause further supply increases into Q1 2026, which supports the current price range. However, ZE notes this pause as merely maintaining the status quo, and insufficient to counter the growing global surplus, or provide any major boost to Oil prices.
Also, US production remains at record highs.The latest weekly EIA data show US crude output around 13.8 million barrels per day (mbpd), nearing last year’s peak, while refineries are running at ~95% capacity.
The prospects for a continuous absorption however is not likely should consumer demand for oil products not increase commensurably. Prices would have to break below current range should demand not improve.
The Market Seems Structurally Oversupplied with Demand-Side the Determining Factor:
EIA forecasts US output to flatline around 13.5 mbpd through 2026, as a result the US supply isn’t expected to let off. Combined with ample OPEC+/non-OPEC output, global inventories are building fast.
Demand remains below desired levels as much of last year’s excess ended up in floating storage or strategic reserves (especially in China), but the trend is clear: the market is structurally oversupplied.
Demand Drivers:
The key factors driving Crude that warrant watching, are;
-
China and global demand: China’s economy is still expanding fuel use only modestly, but its crude imports remain resilient. The EIA projects China’s oil consumption to grow by just ~0.2 mbpd in 2026. Worldwide, demand is forecast to rise by only about 1.1–1.3 mbpd next year.
This would suggest that demand growth is steady but not booming. Demand growth would need to move surprisingly on the upside before any dramatic rise, as consumption alone is unlikely to dramatically tighten balances.
-
US supply and inventories: US crude output near record levels and continued stock builds (even when accounting for recent draws) help keep prices in check. US product inventories (gasoline/diesel) have actually risen recently despite crude draws, signalling that consumption gains have not fully absorbed supply.
-
Refining and other domestic demand: High refinery utilization (~95%) and seasonal fuel needs give some short-term support. But on the flipside is that any drop in refinery runs or demand (e.g. after holidays) would remove that cushion.
-
Currency and Macro: The USD index (DXY) is trading sideways around the 96–102 range. A stronger dollar generally weakens oil prices (since oil is dollar-priced). In recent weeks the dollar hasn’t moved decisively, which helps oil hold gains, but any sudden dollar rally (driven by Fed rate bets, for example) could easily knock oil back.
-
Geopolitics: Short-lived supply shocks like the recent tanker attacks in the Black Sea or Iranian unrest can inject spikes (and some risk premium). But absent a sustained disruption (e.g. an Iran naval blockade), these tend only to cause volatility, not a long-term trend break.
ZE Outlook:
In ZE's balanced view, crude has gained into late 2025/early 2026 on a mix of geopolitics and technical breakouts, but the macro picture is still bearish-leaning. Global inventories are poised to climb, and high production (especially from U.S. shale) is expected to cap prices.
As such, ZE expects any upside or even downside movement to be gradual. But Crude cauld most likely remain stable within ZE prescribed ranges or just above that. A little profit taking or technical correction is not ruled out.
Analyst Remarks:
Crude is hovering at the upper edge of its recent range. There are upside drivers – delayed Venezuela oil, strong refinery demand, geopolitical jitters, and prospects of a weaker dollar should the Federal Reserve cut rates more. Equally there are headwinds: abundant supply, rising stocks, and a firm dollar.
The current rally can continue incrementally if demand stays on track, but only marginally or gradually. A larger, sustained bull run is unlikely unless one of the bearish fundamentals abruptly reverses. For now, oil markets look balanced between bears and bulls, so any comeback is likely to be a slow grind rather than a sharp surge.
Key sources: Market data and analysis from Reuters, the U.S. EIA Short-Term Outlook and weekly reports.
DISCLAIMER: THE ABOVE IS FOR EDUCATIONAL PURPOSES ONLY AND DO NOT CONSTITUTE INVESTMENT ADVICE.
Comments
Post a Comment