Key Points:
- Oil prices jumped 15 percent despite predictions of an oversupply.
- Sanctions on Russian producers removed 600,000 barrels per day.
- Strong US job numbers and cold weather boosted fuel demand.
- Analysts still expect prices to eventually drop to around $56.
Heading into 2026, most experts agreed on one thing: oil would be cheap. Analysts predicted that the world had far more crude than it needed, creating a surplus that would push prices down. Last year, prices dropped by roughly 20 percent as this glut grew. However, the market has defied these expectations completely. Instead of falling, oil prices have rallied, jumping about 15 percent since January.
Geopolitical chaos is the main driver behind this surprise. The United States Treasury Department recently placed sanctions on Rosneft and Lukoil, two massive Russian oil producers. This move effectively wiped about 600,000 barrels per day off the global map.
To make matters worse, drone strikes damaged a key export terminal for the CPC pipeline between the Caspian and Black seas, cutting flows significantly.
Fears of a wider conflict are also keeping prices high. Traders are nervous about potential US military action against Iran, which could threaten the Strait of Hormuz. This narrow waterway is vital, carrying about 20 million barrels of oil daily. Attacks on ships in the Red Sea have also forced tankers to take longer, more expensive routes around Africa.
Demand did not collapse as predicted, either. While manufacturing slowed in Europe and China, unexpected cold weather and a booming US jobs market kept fuel consumption strong. The International Energy Agency recently bumped up its demand forecast, noting that global supply actually fell last month.
Despite the rally, the underlying math suggests oil should be cheaper. The market is still oversupplied by millions of barrels per day. Goldman Sachs predicts Brent crude will eventually average $56 per barrel this year, a steep drop from current levels. Rystad Energy agrees, estimating the fair value of oil is closer to $61. For now, however, the threat of war is outweighing the basic laws of supply and demand.
