Crude Oil Rallies on Dollar Weakness and Heightened Geopolitical Risks

March WTI crude oil (CLH26) on Friday closed up +1.71 (+2.88%), and March RBOB gasoline (RBH26) closed up +0.0307 (+1.67%).

Crude oil and gasoline costs rose sharply on Friday, with crude oil posting a 1-week excessive.  Friday’s hunch within the greenback index (DXY00) to a 3.5-month low is supportive for power costs.  Additionally, a rise in geopolitical dangers is boosting crude costs after Russia threw chilly water on hopes of a breakthrough in peace talks with Ukraine and after President Trump revived the potential of US navy motion in opposition to Iran.

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Crude costs rallied on Friday after the Kremlin mentioned the “territorial challenge” stays unresolved with Ukraine and there is “no hope of reaching a long-term settlement” to the struggle till Russia’s demand for territory in Ukraine is accepted.  The outlook for the Russia-Ukraine struggle to proceed will hold restrictions on Russian crude in place and is bullish for oil costs.

Crude additionally garnered help Friday after President Trump revived his threats to make use of navy power in opposition to Iran for its violent crackdown on protesters, saying an armada of US Navy vessels was en path to the Center East.  

Crude costs additionally rose on Friday after the Monetary Occasions reported that the US is threatening to curb the provision of {dollars} for Iraqi oil gross sales because it pressures Iraq’s main politicians to kind a authorities that excludes Iran-backed militia teams.

Unrest in Iran, OPEC’s fourth-largest producer, can also be underpinning crude costs as Iranian safety forces have killed 1000’s of protesters, and President Trump threatened assaults on Iran if the killing of protesters continues.  Reuters reported final Wednesday that some US personnel have been suggested to depart the US Al Udeid Air base in Qatar.  The ability was focused by Iran in retaliatory airstrikes final yr after the US attacked Iran’s nuclear services.  Iran, OPEC’s fourth-largest producer, produces greater than 3 million bpd, and its crude manufacturing might be disrupted if the protests in opposition to the federal government worsen and the US decides to strike authorities targets.  

Crude oil has carryover help from Tuesday, when Reuters reported that Kazakhstan’s Tengiz and Korolev oil fields could be shuttered till subsequent week resulting from energy generator fires.  Kazakhstan has curbed some 900,000 bpd of crude manufacturing that feeds the Caspian Pipeline Consortium terminal on Russia’s Black Sea Coast resulting from drone strikes.

The IEA on Wednesday lower its 2026 international crude surplus estimate to three.7 million bpd from final month’s estimate of three.815 million bpd.  Final Tuesday, the EIA raised its 2026 US crude manufacturing estimate to 13.59 million bpd from 13.53 million bpd final month, and lower its US 2026 power consumption estimate to 95.37 (quadrillion btu) from 95.68 final month.

Vortexa reported Monday that crude oil saved on tankers which were stationary for not less than 7 days fell -8.6% w/w to 115.18 million bbl within the week ended January 16.

Energy in Chinese language crude demand is supportive for costs.  In line with Kpler knowledge, China’s crude imports in December are set to extend by 10% m/m to a document 12.2 million bpd because it rebuilds its crude inventories.

Crude garnered help after OPEC+ on January 3 mentioned it could persist with its plan to pause manufacturing will increase in Q1 of 2026.  OPEC+ at its November 2025 assembly introduced that members would increase manufacturing by +137,000 bpd in December, however will then pause the manufacturing hikes in Q1-2026 because of the rising international oil surplus.  OPEC+ is attempting to revive all the 2.2 million bpd manufacturing lower it made in early 2024, however nonetheless has one other 1.2 million bpd of manufacturing left to revive.  OPEC’s December crude manufacturing rose by +40,000 bpd to 29.03 million bpd.

Ukrainian drone and missile assaults have focused not less than 28 Russian refineries over the previous 5 months, limiting Russia’s crude oil export capabilities and lowering international oil provides.  Additionally, for the reason that finish of November, Ukraine has ramped up assaults on Russian tankers, with not less than six tankers attacked by drones and missiles within the Baltic Sea.  As well as, new US and EU sanctions on Russian oil firms, infrastructure, and tankers have curbed Russian oil exports.

Thursday’s EIA report confirmed that (1) US crude oil inventories as of January 16 have been -2.5% beneath the seasonal 5-year common, (2) gasoline inventories have been +5.0% above the seasonal 5-year common, and (3) distillate inventories have been -0.5% beneath the 5-year seasonal common.  US crude oil manufacturing within the week ending January 16 was down -0.2% w/w to 13.732 million bpd, modestly beneath the document excessive of 13.862 million bpd from the week of November 7.

Baker Hughes reported Friday that the variety of lively US oil rigs within the week ended January 23 rose by +1 to 411 rigs, simply above the 4.25-year low of 406 rigs posted within the week ended December 19.  Over the previous 2.5 years, the variety of US oil rigs has fallen sharply from the 5.5-year excessive of 627 rigs reported in December 2022. 

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