Price Performance Summary

During the first week, oil prices were supported early on by elevated geopolitical risk premiums. U.S.–Ukraine peace talks stalled due to disagreements over territorial issues; Russia and Ukraine targeted energy infrastructure in the Black Sea region; and the United States imposed a new round of sanctions on Venezuela, forcing PDVSA to shut in production. These developments kept oil prices at relatively high levels. Midweek, however, expectations of severe oversupply this year, combined with further builds in U.S. refined product inventories, extended market fears of weak demand in 2025, causing oil prices to retreat. Later in the week, OPEC+ announced that it would extend its “pause on production increases” plan through March 2026, allowing oil prices to stabilize and rebound modestly.

In the second week, oil prices were initially supported by heightened geopolitical risks as the U.S. blockade of Venezuelan oil tankers and related military deployments continued. EIA data showing a sharp draw in crude oil inventories further reinforced price support. Midweek, oil prices fell after the United States indicated it would take control of Venezuelan crude oil, with Venezuela expected to hand over up to 50 million barrels of sanction-related inventory. In addition, a “coalition of the willing” meeting involving the U.S., Ukraine, and Europe reached an agreement to provide security guarantees to Kyiv, easing geopolitical risk concerns and raising fears of increased supply. Toward the end of the week, escalating protests in Iran and U.S. statements that military action could not be ruled out intensified market concerns over potential disruptions to Iranian oil supply. Russia’s drone strikes on Kyiv further lifted geopolitical risk premiums, driving oil prices higher again.

Crude Oil Data Update

Refinery Utilization Remains High; Crude Draws Exceed Expectations, While Refined Product Builds Are Severe

Over the past two weeks, U.S. commercial crude inventories declined by a cumulative 5.7 million barrels, exceeding market expectations and indicating that downstream refineries continue to operate at strong utilization rates, thereby supporting crude prices. The Strategic Petroleum Reserve continued its gradual replenishment, rising by approximately 0.5 million barrels, though the pace of increases has flattened.

In contrast, refined product inventory builds intensified significantly. Gasoline and distillate inventories surged by 13.5 million barrels and 10.5 million barrels, respectively, suggesting weak post-holiday driving demand and softer-than-expected industrial and heating oil consumption. On the supply side, refinery utilization remained elevated in the 94.6%–94.7% range, with crude throughput exceeding end-demand absorption. As a result, inventory pressure has been concentrated in gasoline and diesel, weighing on oil prices. Meanwhile, the active rig count declined by three rigs last week, signaling continued subdued investment appetite among producers.

Key News Commentary

OPEC+ Extends Its Pause on Production Increases Through Q1 2026

At its January 4 meeting, OPEC+ announced that it would maintain its pause on production increases through the first quarter of 2026, citing growing concerns over global oil oversupply. The group is monitoring whether U.S. control over Venezuelan crude will materially affect supply and noted that it is too early to assess the impact of the U.S. arrest of Venezuelan President Nicolás Maduro.

According to shipping data tracker Kpler, Venezuela currently produces around 800,000 barrels per day. If sanctions were lifted, output could rise by approximately 150,000 barrels per day within a few months. However, restoring production to 2 million barrels per day or higher would require structural reforms and substantial investment by international oil companies. As such, Venezuela’s oil exports are unlikely to change materially in the near term.

U.S. Blockade Forces Venezuelan Shut-Ins; U.S. to Manage Venezuelan Crude Indefinitely

Due to the U.S. blockade of oil tankers, Venezuelan crude has accumulated in storage tanks and chartered vessels. PDVSA’s storage capacity is rapidly being exhausted, forcing some production to be shut in. The U.S. Department of Energy plans to reintroduce the stored crude into the market and to manage and sell Venezuelan oil on an indefinite basis.

U.S. President Donald Trump stated that Venezuela would transfer up to 50 million barrels of sanction-related inventory to the United States, valued at approximately USD 2.8 billion at current prices. However, a volume of 50 million barrels is relatively small in the context of the global oil market and represents a one-off supply release rather than a structural shift. While concerns over incremental Venezuelan supply may pose short-term downside risks to oil prices, the key focus should remain on longer-term supply conditions following any sustained recovery in production capacity.

High Time and Capital Costs for Capacity Recovery; Oil Companies Remain Cautious

Venezuela’s energy infrastructure is severely underdeveloped due to foreign exchange shortages, heavy debt burdens, and technical challenges. Increasing oil production would require approximately USD 100 billion in large-scale investment. Assuming a stable political transition and successful attraction of U.S. oil company investment, Venezuelan production could rise to approximately 1.3–1.5 million barrels per day within two years, and potentially reach 2–3 million barrels per day over the long term (within ten years). However, given ongoing geopolitical instability, the recovery path is unlikely to be so smooth.

Moreover, production costs in Venezuela are higher than in countries such as Brazil or Guyana. According to Rystad Energy, Venezuela’s average breakeven price is as high as USD 80 per barrel, exceeding costs in many existing fields across the Americas. Even if production were to recover to around 3 million barrels per day, this would add only about 2% to global oil supply. As a result, given Venezuela’s small market share, potential supply increases or losses have limited impact on global supply expectations.

That said, if the United States were to successfully assume control over all Venezuelan oil—combined with Guyana’s offshore reserves currently being developed by Exxon Mobil and U.S. domestic reserves—the United States would effectively control approximately 30% of global oil reserves. Such a concentration of potential resources could enhance U.S. influence over oil prices. Historically, the U.S. has favored lower oil prices to suppress inflationary pressures, suggesting a possible preference for maintaining prices at relatively low levels over the long term.

Additionally, President Trump convened senior oil company executives to discuss restarting Venezuelan oil production. Most executives, however, remain cautious about re-entering the country. Chevron, the only major U.S. oil company still operating in Venezuela, is the sole firm to have made concrete commitments to assist in restoring production and has applied for an extension of its special license. Chevron stated it is prepared to significantly increase output, with current production around 240,000 barrels per day and potential growth of approximately 50% over the next 18–24 months. Exxon Mobil, by contrast, has clearly stated that, given Venezuela’s current legal and commercial framework, the country is not an attractive investment destination. Whether the Trump administration will introduce incentives or require Venezuela to provide stronger guarantees on political stability and the safety of personnel and assets will be a key area of focus, particularly in an environment of heightened political uncertainty.

Escalating Protests in Iran; U.S. Threatens Possible Military Action

Since unrest began in Iran late last year, the death toll has risen to 72. In interviews, U.S. President Donald Trump once again warned Iran against further killings of protesters, stating that the United States is closely monitoring the situation and considering potential responses. Markets are concerned that a Trump-led U.S. administration could exploit Iran’s internal turmoil to attempt regime change, similar to U.S. actions in Venezuela. If civilian casualties escalate significantly, the likelihood of U.S. intervention would increase, potentially placing nearly 2 million barrels per day of Iranian oil exports at risk.

While U.S. plans to sell Venezuelan oil into international markets pose some downside risk to prices, Iran is a much larger oil producer and exporter than Venezuela. Any disruption to Iranian supply would therefore have a far greater impact on the crude market. A disruption in Iranian exports could alleviate concerns over global oversupply, making Iran—not Venezuela—the primary source of uncertainty currently facing the oil market. Whether U.S. actions materially disrupt Iranian exports or shipping flows will be a key determinant of future market volatility.

Conclusion

Over the past two weeks, oil prices have been driven primarily by geopolitical developments, with consecutive crude inventory draws exceeding expectations providing additional support. Venezuela’s return to its previous high production levels would require structural reforms and substantial investment by oil companies, suggesting its near-term impact on the oil market will remain limited. Going forward, Venezuela’s political transition and any incentive or guarantee mechanisms introduced by the Trump administration will be important long-term considerations.

By contrast, the key risk to monitor is whether escalating protests in Iran prompt U.S. military action that disrupts Iranian oil exports, thereby increasing supply-side risks. From a fundamental perspective, refined product inventories have continued to rise despite the holiday and heating seasons, indicating weak end-user demand and a lack of growth momentum. As such, while oil prices may rise on geopolitical risk premiums, achieving a sustained breakout over the long term remains challenging.