Topic 5: CRUDE: ENERGY CROSSCURRENTS

Crude oil prices staged a strong comeback in January 2026, reversing December’s weakness as geopolitical tensions and supply-side risks dominated market sentiment. Prices rose from around $60.91 per barrel at the start of the month to $70.69 by January 31, marking a gain of approximately 16%, with intramonth highs near $70.71 amid elevated volatility. Both Brent and WTI futures followed a similar trajectory, climbing from early-month lows in the $55–60 range to above $70 before stabilising toward month-end.
The rally was primarily driven by geopolitical escalations that reintroduced a risk premium into oil markets, despite an otherwise comfortable global supply backdrop. US actions in Venezuela temporarily disrupted nearly 300,000 barrels per day of exports, adding an estimated $3–4 per barrel risk premium. While Venezuela’s overall production remains modest at under 1–1.5% of global supply, the sudden disruption unsettled markets in the short term.
More importantly, concerns around Iran sustained the rally. Iran’s higher baseline output, domestic unrest, and proximity to critical chokepoints such as the Strait of Hormuz created credible fears of broader supply disruptions. Analysts responded by raising price forecasts, with Brent expectations lifted toward the $70 per barrel range as protests escalated. Additional uncertainty stemmed from Ukrainian drone strikes on Russian energy infrastructure, further tightening sentiment.
OPEC+ also played a supportive role by maintaining production restraint and pausing planned supply increases for the first quarter of 2026. This stance helped counter oversupply concerns from 2025 and supported inventory drawdowns, reinforcing bullish momentum. US crude inventory data during the month was mixed but broadly supportive. Early January saw a sharp draw of nearly 3.6–3.8 million barrels, pushing stockpiles below the five-year average and fuelling the initial price surge. While mid-month builds capped further upside, the overall trend pointed to a net crude draw of 1–2 million barrels for January, aligning with geopolitical risk pricing. Strategic Petroleum Reserve levels remained stable, adding confidence that buffer capacity was intact. Currency dynamics also influenced markets. A weaker US dollar early in the month aided gains, though a late rebound limited further upside. For India, the rupee’s depreciation toward 91 per dollar inflated crude import costs, adding to domestic inflation pressures already near 5.5%. While higher oil prices weighed on equities and inflation expectations, upstream energy stocks saw modest benefits.
Overall, January’s rally reflected sentiment-driven repricing rather than a fundamental shift in supply-demand balances. While Venezuela’s impact remained limited, Iran emerged as the key driver of sustained volatility. With global oversupply buffers still in place, oil prices are likely to remain sensitive to geopolitical headlines rather than structural shortages in the near term.