Why Oil Prices Have Begun Rising and What Lies Ahead

13th January 2026

In recent weeks, global oil prices have exhibited an upward trend after a period of relative weakness through much of 2025.

This move reflects a combination of geopolitical risks, demand signals, and market psychology as traders reassess risk and supply dynamics.

At the same time, the broader market remains under pressure from structural oversupply that is expected to influence prices well into 2026.

Geopolitical Tensions and Risk Premiums

One of the clearest drivers of the recent rise has been heightened geopolitical risk. Escalating unrest in Iran — including widespread protests and violent suppression has stoked fears about potential disruptions to Middle Eastern petroleum exports, even though physical flows have not yet been cut. The possibility of wider conflict raises the risk premium embedded in oil futures, pushing Brent crude higher.

Analysts estimate a meaningful chance of a supply disruption if tensions with Iran deepen into a broader conflict — a factor that financial markets price into futures contracts.

Meanwhile, political upheaval in Venezuela — a country with the world's largest oil reserves — and U.S. policy moves around Venezuelan exports have also contributed to uncertainty over future supplies. Some forecasts note that increased Venezuelan crude heading to the U.S. could actually dampen West Texas Intermediate (WTI) prices relative to Brent, reflecting regional supply differences.

Demand Signals and Import Behaviour

At the same time, global demand signals have been mixed but occasionally supportive of oil prices. For example, China — the world's largest crude importer — recorded exceptionally high annual and monthly import volumes in late 2025 as refineries boosted throughput and stockpiled barrels. Strong Chinese inflows can temporarily tighten available floating and land-based crude supplies, adding upward pressure on price.

Nevertheless, actual consumption growth remains moderate; structural trends such as efficiency improvements and the adoption of electric vehicles continue to dampen long-term oil demand growth.

Seasonal and Technical Factors

Seasonal dynamics also play a role. Winter heating demand in the Northern Hemisphere increases fuel use, especially for heating oil and diesel, which can tighten certain refined product markets. Trading models and futures market structures sometimes push near-term prices higher through backwardation when prompt supply looks tighter relative to later months.

Oversupply Fundamentals Remain Strong

Despite these short-term upward impulses, the broad oil market remains characterized by oversupply. Major forecasters — including the U.S. Energy Information Administration (EIA) — expect global production growth to outpace demand through 2026, leading to continued inventory builds and downward pressure on average prices.

Analysts generally agree that a global oil surplus will persist through much of 2026, as OPEC+ unwinds voluntary production cuts, non-OPEC producers expand output, and world demand grows only modestly.

Forecasts and Projections

While short-term price moves can be volatile and headline-driven, the broader forecasts from institutions point toward a moderate downward bias for oil prices over the coming months:

The EIA projects Brent crude to average around $56 per barrel in 2026, with global inventories building as supply growth continues.

Other forecasts place Brent broadly in a $50-$62 range for 2026 under base-case assumptions of ongoing surplus and limited real supply disruptions.

Investment banks and commodity analysts also often expect Brent and WTI to trade below $60 on average in 2026, though geopolitical risk could intermittently push prices above those levels.

These projections illustrate how the short-term drivers of recent price rises. Geopolitical risk and seasonal demand sit atop a market still fundamentally oversupplied.

Short-term price increases have largely been driven by geopolitical risks — particularly unrest in Iran and political developments in Venezuela — as well as seasonal and technical market dynamics.

Underlying fundamentals, however, point to a market still weighed down by oversupply and moderate demand growth, suggesting that prices may remain range-bound or decline on average through much of 2026 unless a significant supply disruption occurs.

Forecasts generally anchor Brent and WTI in the mid-$50s per barrel range for 2026 under most scenarios, with volatility upward if geopolitical risks escalate.