Oil markets remain on edge as geopolitical tensions and fragile diplomacy between the United States and Iran continue to dominate sentiment, pushing traders to position aggressively for further upside.
Despite lingering concerns about global oversupply, crude prices have posted their strongest start to a year since 2022. ICE Brent futures are up roughly 18% since January, defying earlier expectations of a supply-heavy market in 2026.
Bullish Momentum Builds
Volatility has surged as investors factor in the possibility of U.S. military action against Iran. Options activity reflects that anxiety: monthly call option volumes for Brent recently climbed to a record 5.8 million contracts, highlighting growing bets on higher prices.
The structure of the futures market also signals tightening near-term supply expectations. Backwardation has deepened, with the December 2026 Brent contract trading about $4 per barrel below April deliveries, an indication that traders are willing to pay more for prompt barrels.
Hedge funds have amplified the bullish tilt. Data from the U.S. Commodity Futures Trading Commission (CFTC) shows net long positions in ICE Brent swelling to 263,186 contracts in the week ending February 17, more than double early January levels.
Diplomatic Efforts Offer Little Relief
Talks between Washington and Tehran in Geneva have yet to deliver meaningful progress. Even as diplomatic channels remain open, markets appear unconvinced of a breakthrough.
Brent continues to hover around $72 per barrel, brushing aside macroeconomic concerns and renewed trade tensions after former President Donald Trump floated the idea of raising temporary import tariffs from 10% to 15%.
The lack of clarity on geopolitical risk has kept a firm floor under prices.
Banks Raise Forecasts
Reflecting the shift in sentiment, Goldman Sachs raised its 2026 price outlook for Brent and WTI by $8 per barrel, now forecasting averages of $64 and $60 respectively. Notably, the bank’s projections assume no disruption to Iranian supply and a gradual return of OPEC+ production increases.
Freight Rates and Supply Chains Tighten
Beyond crude pricing, transportation costs have surged. Freight rates for Very Large Crude Carriers (VLCCs) transporting oil from the Middle East to China have tripled since the start of the year, with daily charter rates now around $170,000 — the highest level since April 2020.
Higher shipping costs add another layer of inflationary pressure to physical markets.
Corporate and Global Energy Moves
Several developments across the global energy sector are also shaping market expectations:
- Italy’s ENI is considering reviving its oil trading arm after exiting the business in 2019, potentially partnering with Mercuria.
- Shell is moving forward with its Dragon gas project offshore Venezuela after receiving approval from the U.S. Treasury’s OFAC, targeting first gas by late 2027.
- Azule Energy, a BP-ENI joint venture, has begun production at Angola’s Ndungu field, aiming for peak output of 60,000 barrels per day.
- Mubadala Energy has acquired a 15% stake in Egypt’s Nargis offshore concession.
- Saudi Aramco has started marketing an ultra-light crude grade from its $100 billion Jafurah development, pricing it at a premium to Dubai benchmarks.
Elsewhere, Chevron is exploring entry into Iraq’s West Qurna-2 field, while ExxonMobil awaits a U.S. Supreme Court decision over a decades-old asset seizure claim in Cuba.
Broader Commodity Trends
Copper prices have rebounded to two-week highs as Chinese demand returns following Lunar New Year holidays. Meanwhile, Brazil and India have signed a cooperation framework on critical minerals development, reflecting global efforts to diversify supply chains away from China.
In oil-producing nations, Venezuela is ramping up cargo shipments to India following a $2 billion supply deal with Washington, while Kuwait’s national oil firm is negotiating a potential $7 billion pipeline stake sale to global investment funds.
Market Outlook
For now, traders appear more focused on geopolitical risk than on macroeconomic headwinds or oversupply forecasts. With diplomatic progress limited and military tensions unresolved, crude markets remain vulnerable to sharp swings.
Unless meaningful de-escalation materializes, the geopolitical risk premium embedded in oil prices is likely to persist, keeping traders firmly positioned for volatility in the weeks ahead.