At the start of 2026, most oil analysts expected the global crude market to be weighed down by a significant supply glut, keeping prices under pressure throughout the year. After all, oil prices had already fallen by around 20% in 2025 as oversupply concerns intensified. Yet, contrary to those forecasts, prices have rallied in the early months of this year and are now trading above levels seen six months ago.
Brent crude futures have climbed roughly 15% since January, while US benchmark West Texas Intermediate (WTI) is up about 14%. This rise comes despite estimates from the International Energy Agency that the market could face an oversupply of around 3.7 million barrels per day — a figure some analysts have described as extraordinary. On paper, such a surplus should have pushed prices lower, but the market has reacted differently.
A major reason for the resilience in prices has been geopolitical tension and unexpected supply disruptions. US sanctions on major Russian producers such as Rosneft and Lukoil have effectively removed part of the supply from the market. Exports through key pipelines have also declined following drone strikes near the Black Sea. At the same time, escalating tensions between the US and Iran have heightened fears of potential disruptions in the Strait of Hormuz, a critical chokepoint for global oil flows. Attacks on commercial shipping in the Red Sea have further tightened physical markets and increased transportation costs.
Demand has also proven more robust than anticipated. While weaker manufacturing data from Europe and China initially signaled softer consumption, stronger transportation activity, solid demand growth in other regions, and unexpected cold weather have helped offset those concerns. China is expanding its storage capacity and continuing to buy oil, adding further support. Meanwhile, stronger-than-expected US jobs data in January reinforced expectations for steady energy demand.
Despite the recent rally, many financial institutions still believe the market remains fundamentally oversupplied and expect downward pressure to re-emerge over the medium term. Some banks forecast Brent crude to average well below current levels in 2026. However, as long as geopolitical risks remain elevated and demand stays resilient, oil prices may continue trading above their fundamental “fair value,” even in the presence of a supply surplus.
