Global oil markets are navigating a complex landscape defined by geopolitical risks in the Middle East and shifting supply-demand fundamentals. Analysts highlight that Brent crude prices could surge back to $70 per barrel if diplomatic talks between the United States and Iran, currently underway in Oman, break down and tensions escalate. The focus of these high-stakes negotiations is a critical factor for market sentiment, with Iran insisting discussions be limited to nuclear issues while the U.S. seeks to include Iran's ballistic missile program and support for regional armed groups.
The Strait of Hormuz, a maritime chokepoint through which roughly one-fifth of global oil consumption flows, remains a central concern. Any conflict or disruption in this vital waterway, used by major OPEC producers like Saudi Arabia, the UAE, Kuwait, Iraq, and Iran, would trigger significant price volatility. "Should the situation become tense again, the price of a barrel of Brent crude oil could rise back to USD 70," said Barbara Lambrecht, commodity analyst at Commerzbank AG.
Concurrently, the market is digesting revised supply outlooks. The International Energy Agency (IEA) has downgraded its prior expectations for the magnitude of the global oil supply surplus, suggesting a tighter balance than previously modeled. This reassessment, detailed in its January report, indicates the oversupply at the start of the year was "significantly lower than previously expected." The IEA notes that since early 2025, a 3 million barrel per day (bpd) supply increase was driven nearly 60% by non-OPEC+ producers, led by the United States, Canada, Brazil, Guyana, and Argentina.
Further complicating the picture is a new US-India trade deal with implications for Russian oil flows. The agreement reduces US import tariffs on Indian goods to 18% from a previous cumulative 50%, on the condition that India ceases future purchases of Russian oil. Indian imports from Russia already fell to 1.3 million bpd in December, the lowest since October 2022. Finding alternative suppliers for this volume could be challenging and price-supportive, according to analysts. Meanwhile, China's seaborne imports of Russian oil hit a record 1.7 million bpd in January.
Looking ahead, analysts project divergent paths. While geopolitical risks offer short-term support, fundamental oversupply is expected to weigh on prices later in the year. Capital Economics analysts project oil could drop to $50 a barrel by end-2026 as "geopolitical fears will give way to weak fundamentals." At the time of writing, WTI crude traded at $63.24 per barrel and Brent at $67.53.
