Oil prices recently dropped after reaching a two-month high. This decline is mainly due to easing geopolitical tensions and comments from President Trump that lessened worries about Iranian oil supply disruptions. Brent oil prices are expected to stay low, nearing USD 59 per barrel by the year’s end. This forecast relies on the political situation in Venezuela and whether OPEC continues to pause production quotas, which helps maintain prices in the upper USD 50s.

US Budget Deficit

The US government is still dealing with a significant budget deficit, despite an increase in tariff revenue. As of December, the budget shortfall reached $144.75 billion, marking a 68% increase from the previous year. Market predictions indicate that Pump.fun (PUMP) rose about 5% after launching a new feature for creators. This came after a 3% drop the day before, which may lead to more trading activity on the Solana-based platform. In the currency market, the EUR/USD rose, approaching the 1.1630 mark. The British Pound gained strength against the US Dollar, returning to the 1.3400 level, while Bitcoin maintained a value above $95,400, showing a 5% increase over the week. We see the recent pullback in Brent crude as a chance, as concerns about Iran have lessened. This drop from a two-month high was expected once fears of an immediate supply disruption calmed down. The market’s attention is now shifting back to the basics of supply and demand.

Oil Market Strategy

Selling out-of-the-money call options on Brent futures could be a smart move to earn premiums as implied volatility is likely to fall. In 2025, we saw similar price movement when tensions in the Middle East briefly increased and then decreased in the third quarter. A price floor in the high $50s seems probable, making aggressive bearish bets risky. This outlook is backed by OPEC+’s decision last month to keep production quotas the same, which should help avoid a complete price collapse. The U.S. Energy Information Administration (EIA) also noted in its January 2026 short-term outlook a slight global supply surplus for the first half of the year. Thus, we can expect a stable market rather than a sharp decline. The weakness of the US dollar is another important factor, driven by the large federal deficit that hit a record high for December 2024. This shortfall was 68% greater than the previous year, creating long-term pressure on the currency. This situation makes us cautious about holding on to the dollar. In this environment, buying call options on major currency pairs like EUR/USD and GBP/USD could be a good opportunity. Both pairs are returning to significant technical levels as the dollar fades. We should keep an eye on upcoming U.S. inflation data, as any signs of cooling could speed up the dollar’s decline. Gold is retreating from its recent highs, aligning with the easing of geopolitical risk. Last week, 10-year Treasury yields remained steady above 4.5%, creating positive real yields that limit gold’s appeal as a non-yielding asset. We view the $4,600 per ounce level as a crucial support area. On the other hand, Bitcoin is stabilizing above $95,000, showing its role as a high-risk asset sensitive to market liquidity. Open interest in the options market reveals significant activity around the $100,000 strike price for the February 2026 expiry. This indicates it is a crucial psychological level that might see trading activity in the next few weeks. Create your live VT Markets account and start trading now.

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