Oil prices have reached a three-month-high due to simultaneous geopolitical tensions in Venezuela and Iran, as well as the Black Sea. This has created a dangerous environment for investors, even though a massive supply glut is still hanging over the market. Brent crude began the year at a price of $61 per barrel, before falling below $60 following?U.S. Donald Trump stunned the world when he ousted Venezuelan President Nicolas Maduro. The drop reflected the expectation that Washington would quickly restore output and exports from a country with?the world's largest proved reserves. Oil markets began to become more bullish once details of U.S. plans became available. After that, there were the?the?protests?in Iran and Trump’s threats to intervene on behalf of demonstrators who faced a deadly crackdown. The situation pushed prices up 9% within a week, reaching a three-month peak of $66 per barrel on Wednesday. However, prices fell to $64 on Friday after Trump stated that he believed the crackdown on Iran was ending.

The immediate threat is a disruption of supply in an environment that is volatile and unpredictable. Drones have added to the tensions in the Middle East, and beyond. On Tuesday, two oil tankers, one of which was chartered by the U.S. energy giant Chevron were attacked in the Black Sea as they approached the Russian coast terminal, where most of Kazakhstan's crude is exported. The perpetrators are still unknown. The attacks on Western-operated tanks followed last week's U.S. seizure by the U.S. of a Russian flagged vessel in the Atlantic, increasing the possibility that additional oil supplies will be drawn into conflict.

These supplies could be huge. In 2025, combined oil exports to Venezuela, Iran and Black Sea will reach 4.6 million barrels a day - approximately 4.5% of the global supply. Energy markets are less willing to factor in geopolitical risks in recent years but this figure is one traders cannot ignore.

Back to HORMUZ

Iran is the greatest geopolitical risk. It's the only country that could threaten the Strait of Hormuz - the narrow waterway in the middle of Iran where nearly 20% of the world's oil and gas are shipped. Tehran is unlikely to take this "nuclear" option, however, because it would shut down its crude exports. It would also likely prompt a swift response from the U.S. This was likely the regime's calculation during the 12-day Israel/Iran conflict last year. Iran still has options, including targeting regional U.S. ally. Tehran's attack on a U.S. military base in Qatar was met with a decline in oil prices in June. A repeat could have a different impact now. In 2019, an Iranian drone attacked Saudi Arabia's Abqaiq facility, causing it to shut down for weeks. This led to a spike in oil prices.

FORGET THE GLUT? Although the 9% increase in crude oil prices over the last week is noteworthy, they still remain within a fairly narrow range that they have been trading in for months. Why hasn't the 2026 explosion of geopolitical conflict caused a greater increase in crude prices? It is mainly because the increase in global crude oil supplies threatens to exceed demand over the next few years. The U.S. The Energy Information Administration predicts that global inventories will increase by an average 2.8 million barrels a day in 2026.

According to Kpler, analytics firm, the volume transported by tankers in recent months has increased significantly to around 1.3 million barrels. This is the highest level since mid-2020 when the global demand plummeted due to COVID-19 locksdowns. The so-called "oil over water" is typically higher when the supply exceeds demand.

Around a quarter of this volume currently comes from Iran, Russia, and Venezuela. These are sanctionsed supplies, which would take longer to be purchased.

The figure is still?high, but there are signs that crude and product inventories in the land also continue to rise.

The oil price curve suggests that traders do not expect a large build.

In recent weeks, the price of Brent crude has shifted to a structure called backwardation. This means that they are trading at a higher premium than contracts for delivery towards the end 2026.

Contango is a structure whereby the immediate price must be lower than the future price to make storage profitable. The discrepancy between the physical market's price curve and its actual value is likely due to the inability to see the "shadow fleet" or large tankers that transport sanctioned oil, as well as China’s opaque storage.

The traders will also have to speculate on the possible outcomes of the complex and rapidly changing political situations in the three main oil-exporting countries, before determining the impact of the supply.

Investors face a wide range of outcomes and prices are likely to remain volatile until some of the questions that hang over markets have been answered.

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(source: Reuters)