Following an increase in oil prices in January, OPEC+ will meet on Sunday.
Oil prices concluded the month of January with their first uptick in six months. The world’s supply of petroleum is still anticipated to exceed demand this year, which is not surprising considering the threats to the global oil flow associated with Venezuela and Iran.
When they meet this weekend to debate their oil-production targets, the Organization of the Petroleum Exporting Countries and its allies—the group of big oil producers known as OPEC+—will need to consider all of that.
January has seen a “repricing of geopolitical risk layered on top of a market that had grown far too comfortable with the surplus story,” said Stephen Innes, managing partner at SPI Asset Management.
After declining for five straight months, West Texas Intermediate crude for March delivery (CLH26) (CL.1) reported a 14% rise for the month of January on Friday. It dipped down by 0.3% Friday to close at $65.21 a barrel on the New York Mercantile Exchange.
On ICE Futures Europe, March Brent crude (BRNH26), which expired at the end of Friday’s session, ended barely changed at $70.69 for a 16% monthly increase.
Oil prices witnessed their first monthly gain in six months “not because balances suddenly tightened in a structural way, but because the market had underpriced geopolitical optionality and was forced to buy it back in a hurry,” Innes said.
The world was unsure whether the seizure of then-Venezuelan President Nicolás Maduro by the U.S. military on January 3 would result in more or less oil on the world market, at least not in the immediate future. Maduro was ultimately charged with narcoterrorism.
The result, for now, appears to be that it will take a long time to repair Venezuela’s oil infrastructure to the point where it can see a meaningful rise in production levels. Meanwhile, Kpler data shows that Venezuelan crude exports to the United States have increased to their highest levels in nearly a year.
According to Kpler, Venezuelan crude exports to the United States have reached their highest level in nearly a year. (The missing bars indicate months when the Trump administration temporarily withdrew Chevron’s permission to operate in Venezuela.)
Tensions with Iran have also been in the forefront, with U.S. President Donald Trump ratcheting up pressure on the Middle Eastern nation to negotiate a nuclear deal.
Venezuela is more background noise than a key driver, but along with Iran, the news were “sufficient to shake a market that had been trading as if nothing bad could happen,” Innes said.
Despite all the events in January, however, the global oil market is still likely to enjoy a supply surplus this year. The story has just been “muted by geopolitics and positioning” in the oil market, he said.
The eight OPEC+ alliance members who had to undertake voluntary production cuts may find it easier to decide on output if they are aware of that.
The eight-member panel reiterated their decision to halt production increases until the first quarter of 2026 during their most recent meeting, which took place on January 4.
After the market resumes trading fundamentals rather than headlines, OPEC+ is “likely to sit on its hands, let the premium do its work, and reassess.”‘ Stephen Innes, SPI Asset Management
For this weekend’s meeting, the “base case is policy inertia,” Innes added. “Reconfirm the current framework, signal discipline and avoid becoming the source of volatility while geopolitics is doing that job for free.”
He continued: “Prices have recovered enough to buy patience, not confidence.” The surge in oil appeared to be driven by geopolitical fear, rather than demand-validated, and OPEC+ “understands that leaning into it by adding supply would likely cap the move rather than monetize it.”
Therefore, OPEC+ is “likely to sit on its hands, let the premium do its work, and reassess once the market is trading fundamentals again rather than headlines,” Innes stated.
