Oil prices rebound over 2% on geopolitical fears, but global supply glut, Saudi cuts loom

Oil prices jumped on Monday on potential disruptions in oil supply from the Middle East. 

At the time of writing, the price of West Texas Intermediate crude oil was at $58 per barrel, up 2.2%, while Brent was 2% higher at $61.44 a barrel. 

Both oil benchmarks had fallen more than 2% on Friday. 

Geopolitical tensions fuel a surge 

Oil prices rose, driven by heightened Middle East tensions that increase the risk of supply disruptions. 

This includes Saudi Arabia’s reported airstrikes in Yemen and Iran’s provocative rhetoric, which said that it is in a “full-fledged war” with the US, Europe, and Israel.

“Energy markets moved higher as geopolitical developments lent support to crude prices, with Brent edging up on renewed Middle East tensions and shifting Ukraine peace talks,” IG analyst Axel Rudolph was quoted as saying in a Reuters report.

Thin trading volumes could pave the way for more volatility in the oil market at the start of next year, added Rudolph.

According to a Sunday report from Bloomberg, President Trump indicated “a lot of progress” in his talks with Zelenskiy. 

However, he cautioned that no definitive breakthrough has been achieved on territorial disputes, suggesting a final agreement might still be several weeks away.

Meanwhile, a meeting with Russia, according to Zelenskyy, can only take place once both President Trump and European leaders have consented to a peace framework put forth by Ukraine.

Saudi Arabia’s price cuts and supply glut

Additionally, Saudi Arabia, the world’s largest oil exporter, is anticipated to reduce the price of its primary Arab Light crude for Asian customers in February. 

This expected reduction is due to declines observed in the spot market, reflecting plentiful crude supplies, according to a Reuters survey of six Asia-based refining sources.

This decline would represent the third consecutive monthly drop, deepening losses from the January premium of 60 cents a barrel, which was already the lowest in five years.

The OSP for Arab Extra Light crude oil is anticipated to decrease in February, according to the latest market survey.

This decline is projected to be in the range of 10 to 20 cents per barrel.

Meanwhile, China’s announcement of increased fiscal spending in 2026 suggests a proactive stance to stimulate economic growth, which is generally seen as a positive sign for future oil demand. 

This comes as the crude oil market faces significant downward pressure. Despite the potential tailwind from Chinese stimulus, crude is currently headed for a more than 20% decline this year—its steepest annual drop since 2020. 

The primary factor driving this sharp decline is the widespread expectation of a global oil supply surplus in the coming year, overshadowing near-term positive demand signals.

On the other hand, US crude oil stockpiles data for the week ending December 19 is highly anticipated by investors. 

A Reuters poll, which was extended, suggests a likely decline in US crude oil inventories for the past week, although both distillate and gasoline inventories are projected to have increased.

Due to the Christmas holiday, the report’s release was postponed from its typical Wednesday schedule last week.

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