Crude Prices Surge Amid Intensifying Protests in Iran

Crude Oil and Gasoline Surge to One-Month Highs

February WTI crude oil futures have climbed by 3.10% today, while February RBOB gasoline contracts are up 2.00%. Both commodities have reached their highest levels in a month.

The rally in oil and gasoline prices is fueled by escalating unrest in Iran, a major OPEC producer. Intensifying protests against the Iranian government have heightened concerns about potential supply disruptions. Additionally, positive economic indicators from the United States—such as a drop in December’s unemployment rate and improved consumer sentiment in January—are boosting expectations for stronger energy demand. Notably, these gains in crude prices are occurring even as the US dollar index hits a four-week peak.

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Geopolitical Tensions and Economic Data Drive Oil Markets

Heightened instability in Iran is pushing crude prices higher, following government threats of severe penalties for protestors damaging property or clashing with authorities. US President Trump has also issued a stern warning to Iran’s leadership regarding protestor safety. With Iran producing over 3 million barrels per day, any escalation could disrupt global oil supplies.

Robust US economic data is further supporting oil prices. The unemployment rate in December dipped to 4.4%, beating forecasts, while the University of Michigan’s consumer sentiment index for January rose to 54.0, surpassing expectations.

Oil prices are also benefiting from a stronger crack spread, which has reached a three-week high. This encourages refiners to increase crude purchases and ramp up production of gasoline and distillates.

The annual rebalancing of major commodity indexes is expected to trigger additional oil buying. Citigroup estimates that the BCOM and S&P GSCI indexes will attract $2.2 billion in oil futures inflows over the coming week as part of this rebalancing process.

Market Headwinds: Price Cuts and Surplus Forecasts

On the downside, Saudi Arabia has reduced the price of its Arab Light crude for February deliveries for the third consecutive month, reflecting concerns about weaker energy demand.

Morgan Stanley has revised its outlook, projecting a larger global oil surplus that could peak mid-year. The bank has lowered its Q1 crude price forecast to $57.50 per barrel (down from $60) and its Q2 estimate to $55 per barrel (also down from $60).

Additional Market Developments

According to Vortexa, the volume of crude stored on stationary tankers fell by 3.4% week-over-week to 119.35 million barrels as of January 2.

Chinese crude demand remains robust, with Kpler data indicating that China’s December oil imports are set to jump 10% month-over-month to a record 12.2 million barrels per day as the country replenishes its reserves.

OPEC+ recently confirmed it will maintain its pause on production increases through the first quarter of 2026. After raising output by 137,000 barrels per day in December, the group is holding off on further hikes due to a projected global surplus. The IEA has forecasted a record surplus of 4 million barrels per day for 2026. OPEC is gradually restoring the 2.2 million barrels per day cut made in early 2024, with 1.2 million barrels per day yet to be reinstated. OPEC’s crude output in December rose by 40,000 barrels per day to 29.03 million barrels per day.

Ukrainian drone and missile strikes have targeted at least 28 Russian refineries in the past four months, curbing Russia’s export capacity and tightening global supplies. Since late November, Ukraine has also increased attacks on Russian tankers, with at least six vessels hit in the Baltic Sea. New US and EU sanctions on Russian oil infrastructure and tankers have further restricted Russian exports.

The IEA recently projected that the global oil surplus will expand to a record 3.815 million barrels per day in 2026, up from over 2 million barrels per day in 2025.

OPEC has updated its Q3 global oil market outlook, now expecting a surplus of 500,000 barrels per day, compared to last month’s forecast of a 400,000 barrel per day deficit. The EIA has also raised its 2025 US crude production estimate to 13.59 million barrels per day.

The latest EIA data shows that as of January 2, US crude inventories were 4.1% below the five-year seasonal average, gasoline stocks were 1.6% above average, and distillate inventories were 3.1% below average. US crude production for the week ending January 2 slipped by 0.1% to 13.811 million barrels per day, just shy of the record set in November.

Baker Hughes reported an increase in active US oil rigs, rising by three to 412 in the week ending January 2, rebounding from a 4.25-year low. Over the past two and a half years, the rig count has dropped significantly from the 5.5-year high of 627 reached in December 2022.