Oil Jumps 2% as Middle East Tensions Lift Supply-Risk Premium

Oil rebound leaves markets pricing risk against a 2026 surplus

Oil jumped about 2% on Monday, December 29, 2025, after a more than 2% drop on Friday, as traders repriced security risks even while the medium-term balance points to plentiful supply. Brent crude at $61.86 a barrel rose $1.22 by 09:48 GMT and U.S. West Texas Intermediate gained $1.22 to $57.96. The move matters for markets because crude prices feed inflation expectations, energy-sector earnings and the currency outlook for major exporters and importers.

Middle East tensions are keeping the oil supply-risk premium in the front month

Middle East tensions provided the most immediate support to prices, because disruptions in the Gulf and Red Sea region can tighten supply quickly through shipping, insurance and export scheduling. Saudi air strikes in Yemen were the latest focal point, adding to investor caution around key waterways and regional infrastructure. Even without an immediate outage, higher perceived risk often shows up first in prompt spreads and freight, then in outright prices.

Ukraine diplomacy alters the hedge demand more than the physical flow today

Oil also reflected the latest diplomacy around Ukraine. Ukrainian President Volodymyr Zelenskiy said significant progress had been made in talks with U.S. President Donald Trump and that U.S. and Ukrainian teams would meet next week to finalize issues aimed at ending the war, while also tying any meeting with Russia to agreement on a proposed framework with U.S. and European leaders. For energy, the direct mechanism is risk hedging around sanctions and enforcement rather than a day-one change in Russian exports.

Saudi February pricing signals still point to soft physical conditions in Asia

Physical pricing in Asia is sending a more bearish signal than the futures bounce. Saudi Arabia is expected to cut the February official selling price for Arab Light crude to Asia for a third straight month, by about 10–30 cents a barrel, to a premium of roughly 30–50 cents over the Oman/Dubai average. A third consecutive reduction implies spot indicators remain weak enough that producers are using pricing to defend market share.

OPEC+ additions and non-OPEC growth keep the 2026 surplus in the base case

Supply policy remains the bigger anchor on rallies. OPEC+ has returned about 2.9 million barrels per day to the market since April 2025, and eight members have paused further increases for the first quarter of 2026 rather than reversing earlier additions. The International Energy Agency projects global supply exceeding demand by 3.84 million barrels per day in 2026, a gap that tends to cap sustained rallies unless geopolitics starts removing barrels for more than a few sessions.

U.S. inventory data can reset short-term pricing after the holiday delay

The next near-term catalyst is U.S. stockpiles data for the week to December 19, delayed by the Christmas holiday. Positioning has centered on U.S. crude inventories expected to fall, while distillate and gasoline inventories rise, a combination that can lift crude while tightening the squeeze on refiners if product demand looks sluggish. Any surprise can move front-month time spreads quickly, especially into the year-end.

Venezuela enforcement is small in volume but meaningful for grades and routes

Investors are also tracking U.S. enforcement actions that affect Venezuelan oil shipments. Venezuela accounts for about 1% of global supply and much of its crude has been flowing to smaller independent refiners in China, so the main impact tends to be on differentials and freight rather than on the headline Brent contract. Tightness in medium and heavy grades can still ripple into refinery margins and product pricing outside the United States.

WTI trading range $55–$60 remains the practical line for hedging

Despite Monday’s bounce, recent price action has kept WTI pinned to a narrow band that risk managers are using as a reference. A WTI trading range $55–$60 has framed hedging and producer selling, with durable breaks above $60 typically requiring verified supply disruption or an abrupt shift in producer policy. Repeated tests below $55 would more likely need evidence of sustained inventory builds or weaker consumption.

Equity, FX and rates respond differently to a $1 move in crude at year-end

In equities, higher crude usually supports upstream producers and integrated majors, while raising cost pressure for airlines, shipping and chemical producers. In FX, firmer oil can support exporter currencies and weaken net-importer currencies by lifting expected import bills, with the effect most visible when the move coincides with thinner year-end liquidity. In rates, a rebound in energy can lift near-term inflation pricing and keep front-end yields sensitive to follow-through in gasoline and diesel benchmarks.

What comes next hinges on inventories, Saudi pricing and the next geopolitical step

The base case is choppy trade: geopolitical headlines sustain volatility, but surplus expectations and softer physical pricing limit follow-through, leaving Brent anchored in the low $60s and WTI in the mid-$50s. An upside scenario requires a concrete disruption that slows exports or raises shipping and insurance costs, alongside larger crude draws that tighten time spreads. A downside scenario needs clearer confirmation of surplus through rising inventories and weaker product cracks, combined with calmer geopolitics that reduces hedging demand and drags prices toward the lower end of recent ranges.