Crude Oil Prices Jump on Heightened Geopolitical Risks and Falling US Supplies

March WTI crude oil (CLH26) today is up +1.58 (+2.42%), and March RBOB gasoline (RBH26) is up +0.0311 (+1.58%).

Crude oil and gasoline prices added to Wednesday’s sharp rally today, with crude climbing to a 6.5-month high and gasoline posting a 1-week high.

Mounting geopolitical risks in the Middle East are pushing crude prices sharply higher.   The United Nations nuclear watchdog said today that the US military buildup in the Middle East means Iran’s window to reach a diplomatic agreement over its nuclear activities is at risk of closing.  President Trump said today that Iran is a “hot spot” right now and that the next 10 days will tell whether there will be a deal with Iran.  Crude prices added to their gains today after weekly EIA inventories unexpectedly fell.

Crude prices also have support from Wednesday’s report from Axios that said there’s no evidence of a diplomatic breakthrough with Iran on a nuclear deal, and any military operation against Iran would likely be a joint US-Israeli campaign that could last for weeks and be much broader in scope than last month’s US operation in Venezuela.  Meanwhile, the US Department of Transportation recently issued a maritime advisory stating that American-flagged ships should stay as far as possible from Iranian waters when navigating the Strait of Hormuz.  Iran is OPEC’s fourth-largest producer, and a US attack on the country could disrupt its 3.3 million bpd of crude production and potentially close the Strait of Hormuz, through which about 20% of the world’s oil passes.  

Wednesday’s US-brokered meeting in Geneva to end the war between Russia and Ukraine ended early as Ukrainian President Zelenskiy accused Russia of dragging out the war.  Russia has said the “territorial issue” remains unresolved with Ukraine, and there’s “no hope of achieving a long-term settlement” to the war until Russia’s demand for territory in Ukraine is accepted.  The outlook for the Russia-Ukraine war to continue will keep restrictions on Russian crude in place and is bullish for oil prices.

Mounting crude supplies in floating storage are a bearish factor for oil prices.  According to Vortexa data, about 290 million bbl of Russian and Iranian crude are currently in floating storage on tankers, more than 50% higher than a year ago, due to blockades and sanctions on Russian and Iranian crude.  Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least 7 days fell by -8.2% w/w to 86.95 million bbl in the week ended February 13.

An increase in crude exports from Venezuela is also boosting global oil supplies and is bearish for prices.  Reuters reported last Monday that Venezuelan crude exports rose to 800,000 bpd in January from 498,000 bpd in December.

Last Tuesday, the EIA raised its 2026 US crude production estimate to 13.60 million bpd from 13.59 million bpd last month, and raised its US 2026 energy consumption estimate to 96.00 (quadrillion btu) from 95.37 last month.  The IEA last month cut its 2026 global crude surplus estimate to 3.7 million bpd from last month’s estimate of 3.815 million bpd.  

On February 1, OPEC+ said it would stick to its plan to pause production increases through Q1 of 2026.  OPEC+ at its November 2025 meeting announced that members would raise production by +137,000 bpd in December, but will then pause the production hikes in Q1-2026 due to the emerging global oil surplus.  OPEC+ is trying to restore all of the 2.2 million bpd production cut it made in early 2024, but still has another 1.2 million bpd of production left to restore.  OPEC’s January crude production fell by -230,000 bpd to a 5-month low of 28.83 million bpd.

Ukrainian drone and missile attacks have targeted at least 28 Russian refineries over the past six months, limiting Russia’s crude oil export capabilities and reducing global oil supplies.  Also, since the end of November, Ukraine has ramped up attacks on Russian tankers, with at least six tankers attacked by drones and missiles in the Baltic Sea.  In addition, new US and EU sanctions on Russian oil companies, infrastructure, and tankers have curbed Russian oil exports.

Today’s weekly EIA inventory report is bullish for crude and products.  EIA crude inventories unexpectedly fell by -9.01 million bbl versus expectations of a +1.65 million bbl build.  Also, EIA gasoline supplies fell by -3.2 million bbl, a larger draw than expectations of -332,000 bbl.  In addition, EIA distillate stockpiles fell by -4.57 million bbl, a larger draw than expectations of -1.95 million bbl.  Finally, crude supplies at Cushing, the delivery point for WTI futures, fell by 1.1 million bbl.

Today’s EIA report showed that (1) US crude oil inventories as of February 13 were -6.0% below the seasonal 5-year average, (2) gasoline inventories were +3.3% above the seasonal 5-year average, and (3) distillate inventories were -5.8% below the 5-year seasonal average.  US crude oil production in the week ending February 13 rose +0.2% w/w to 13.735 million bpd, just below the record high of 13.862 million bpd from the week of November 7.

Baker Hughes reported last Friday that the number of active US oil rigs in the week ended February 13 fell by 3 to 409, just above the 4.25-year low of 406 rigs posted in the week ended December 19.  Over the past 2.5 years, the number of US oil rigs has fallen sharply from the 5.5-year high of 627 rigs reported in December 2022.