Global Demand Slowdown Contrasts Oil Price Surge: Complete Market Factors Analysis

Geopolitical Tensions Trigger Immediate Rise in Energy Markets

Crude oil has experienced a significant upward movement in recent trading sessions, with February WTI futures rising by 3.10% and the same-month RBOB gasoline contracts increasing by 2.00%. Both energy products hit monthly highs, reflecting escalating geopolitical tensions in a strategically crucial country for global supply. The intensification of social protests in Iran—OPEC’s leading exporter with a production exceeding 3 million barrels per day—has fueled real fears of potential disruptions to international supplies.

Iranian leadership has threatened severe sanctions against protesters, while US authorities have issued security warnings. This climate of volatility has prompted market participants to price in a substantial risk premium in crude oil, pushing prices toward new monthly highs. Political uncertainty in an OPEC country remains one of the main catalysts for the current bullish movements.

US Economic Indicators Support Expected Energy Demand

Alongside geopolitical tensions, US macroeconomic data have provided encouraging signals. The December unemployment rate fell to 4.4%, surpassing analysts’ forecasts, while the University of Michigan’s consumer confidence index for January reached 54.0 points, also above expectations. These positive results suggest a resilient US economy capable of supporting stronger energy demand in the coming months.

The US dollar index reached a new four-week high, a factor that typically exerts downward pressure on commodities priced in US dollars. Nonetheless, the relative strength of employment and confidence data prevailed, confirming investor optimism about the US economic outlook.

Technical Factors and Rebalancing Accelerate Rally

The crack spread—refining margin between crude oil and finished products—hit a three-week high, encouraging refineries to increase crude acquisitions and boost gasoline and distillate production. This technical move provides additional support to prices.

The annual rebalancing of major commodities indices also acts as a bullish driver. Citigroup estimates inflows of approximately $2.2 billion into crude futures during the upcoming rebalancing cycle, a substantial volume likely to amplify upward pressure on prices.

Clouds on the Horizon: Surplus Forecasts and Demand Reduction

However, medium- to long-term outlooks are less optimistic for sustained high prices. Saudi Arabia has cut its Arab Light crude price for the third consecutive month for February deliveries, a clear sign of concern regarding global energy demand strength.

Morgan Stanley has adopted a more bearish stance, forecasting a large global oil surplus peaking around mid-year. The financial institution has revised downward its crude price estimates: $57.50 per barrel for Q1 ( previously $60) and $55 for Q2 ( also reduced from $60).

Supply Dynamics: Complexity in Global Reallocation

OPEC+ confirmed the maintenance of a production pause until the first quarter of 2026. Although the cartel increased output by 137,000 barrels per day in December, the strategy of suspending further increases reflects expectations of a structural surplus. The International Energy Agency projects a record surplus of 4 million barrels per day in 2026.

Gradual restoration of production cuts continues, with 1.2 million barrels still to be reintegrated from the 2.2 million originally reduced at the start of 2024. OPEC’s December production increased by 40,000 barrels per day, reaching 29.03 million barrels daily, reflecting the delicate balance between supply management and market pressures.

Geostrategic Factors: Proxy Wars and Restructuring Sanctions

Ukrainian attacks on Russian oil infrastructure have intensified, affecting at least 28 refineries over the past four months. Simultaneously, six Russian tankers have been damaged in the Baltic Sea, limiting Russia’s export capacity. New US and European sanctions on Russian oil infrastructure have further constrained Moscow’s exports, tightening global supply and indirectly supporting crude prices.

Chinese Demand Resilience Contrasts Weakness Forecasts

China maintains robust energy demand, with December oil imports estimated to have increased by 10% month-over-month, reaching a record 12.2 million barrels per day as the country builds its strategic reserves. This dynamism of the world’s second-largest economy counters the expected weakness in other regions.

US Shale Expansion: Active Rigs Recover Ground

US crude oil production for the week ending January 2 stood at 13.811 million barrels per day, slightly below the November record. However, the number of active oil rigs increased by three to 412 in the week ending January 2, rebounding from four-year lows. The EIA also raised its US production forecast for 2025 to 13.59 million barrels per day, indicating a potential increase in domestic supply in upcoming quarters.

US Inventories: Mixed Picture with Distillates Under Pressure

As of January 2, US crude inventories were 4.1% below the five-year seasonal average, indicating relatively tight stock levels. Gasoline reserves exceeded the average by 1.6%, while distillates were 3.1% below average, signaling an asymmetric distribution of refined products that is expected to persist in the coming months.

Conclusions: Short-Term Volatility Versus Long-Term Structural Pressures

Crude oil is currently caught between short-term bullish impulses—driven by geopolitical factors and positive economic data—and medium- to long-term structural pressures associated with forecasts of a global surplus. Investors and traders remain cautious, aware that a slowdown in global demand and increased supply could dominate in the coming quarters, despite current supports from tensions in a strategic producing country.