Oil prices have bounced back after recent declines, as fears about Iran have temporarily eased. Even with these reduced concerns, worries about a global oversupply are keeping oil prices from rising. West Texas Intermediate (WTI) US Oil is priced at around $59.80 per barrel, reflecting a 1.60% increase. This recovery comes after a reassessment of risks in the Middle East, influenced by cautious comments from the White House about Iran.

Geopolitical Impact

President Donald Trump eased military threats, helping to calm fears of increased violence in the region. Regional allies also encouraged caution, which has lowered the geopolitical risk in oil prices. There were worries about disruptions to Iranian oil production, a key player in OPEC, affecting the global supply. Although geopolitical risks still exist, they are now influencing market reactions more carefully. Despite these geopolitical factors providing some support, concerns about oversupply are impacting the market outlook for WTI US Oil. Analysts expect plenty of supply in 2026, despite earlier forecasts suggesting balance. Shell’s Energy Security Scenarios 2026 report points to a positive energy demand outlook by 2050, which contrasts with today’s oversupply issues.

Market Analysis

The US has seized oil tankers linked to Venezuela, but this has not significantly impacted global supply. Overall, easing geopolitical tensions are helping WTI Oil prices, even as supply and demand worries linger. WTI crude oil is stabilizing around $59, but this recent strength feels uncertain. For now, the market seems to be taking a breather from geopolitical worries as the situation with Iran has eased. However, the current reality of a well-supplied market is setting a firm limit on any significant price increases. Concerns about oversupply were reinforced by this week’s Energy Information Administration (EIA) report, showing an unexpected inventory increase of 2.5 million barrels. This marks three weeks in a row of growing stockpiles, which adds pressure on prices. Also, US crude production is expected to reach a record 13.5 million barrels per day this quarter, highlighting supply challenges. Reflecting back to 2025, we saw how quickly geopolitical premiums can vanish, making the current rally a potential chance to consider selling or buying put options to prepare for a decline towards the mid-$50s. The supply and demand balance does not support prices above $60 for an extended period right now. On the demand side, the outlook is not bright, as China’s latest manufacturing PMI slipped back into contraction. OPEC+ is maintaining its production cuts, but compliance has reportedly dropped to 95% in early January from the stronger levels seen in late 2025. This suggests that discipline among producers may be weakening. While long-term reports like Shell’s indicate a promising future for energy decades from now, we need to focus on present realities in the coming weeks. The market indicates that oversupply is currently the main issue. Any further easing of tensions in the Middle East could remove the last support for current prices. Create your live VT Markets account and start trading now.

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