Oil is the lifeblood of the global economy, and so any major price fluctuations in this crucial energy source tend to have rippling effects across a whole spectrum of markets. After a period of extreme increases during the post-pandemic period brought widespread inflation, crude oil has since traded in and around the upper range of the ten-year average. Brent currently (29 January) stands at $69.33 a barrel, while WTI crude is available for $64.18. At present levels, oil is now at its most expensive since September 2025, and the fundamentals would suggest that we might see higher prices yet.
Between the deepening geopolitical uncertainty exacerbated by an aggressive US foreign policy, falling inventories, and slowing output growth by OPEC+, all the factors are there for further price increases. Nonetheless, the possibility of the weak dollar recovering, coupled with conflict mediation and peace-seeking efforts, as well as the reopening of closed production facilities, could all help neutralise the supply-side issues noted above. In this piece, we'll try to elucidate all of these factors and more as we explore where oil could be headed in 2026.
High on our own supply
The incessant sabre-rattling of the Trump administration reached a new fever-pitch with the forceful removal of Venezuelan president Nicolas Maduro, and now the real threat of invading and taking control of the Danish territory of Greenland. And despite the prospect of Venezuelan and Greenland oil entering the market, the long payback timeline and wider geopolitical instability that these coups would reveal are likely to negate any price reductions from increased supply. Exxon Mobil informed Trump that it would take at least 30 years for the investment needed to refine Venezuela's tar-like crude to pay off, while Greenland has been unsuccessfully trying to make its own oil industry viable for 50 years now.
This comes as tensions between oil-rich Iran and the US and Israel continue to deteriorate, further exacerbating scarcity fears. If this wasn't enough, the US EIA reported on Wednesday (28 January) that the country's crude oil reserves fell by 2.3 million barrels to 423.8 million barrels in the week ended 23 January. This was particularly shocking in the context of Reuters analysts' expectations of a 1.8 million-barrel rise and the presence of total products supplied data showing an increase in US demand to 20.3 million barrels per day over the last four weeks. While this is a relatively short-term issue, if reserves aren't replenished soon, it risks a cascading impact if prices increase further as a result of other factors.
The buck stops with US
One of the overlooked features of the recent oil price gains is the role of the US dollar. The greenback is now hovering around four-year lows against a basket of other key majors in the Dollar Index (DXY). This makes dollar-denominated commodities like oil cheaper for those holding other currencies, albeit nominally more expensive. In other words, the weak dollar exaggerates the increases we've seen in the price of oil, and in fact, oil is now cheaper in euros than it was six months ago. However, the US Federal Reserve has finally taken measures to support the dollar by holding rates steady at 3.5% to 3.75% at its meeting on 28 January. The result of this should be to halt any further depreciation and thus slow the dollar-cost increases in crude that we've been seeing over the past few months.
Conversely, in a move that could bring additional supply-side pressure, OPEC+ is expected to reaffirm its Q1 pause on production increases at its 1 February meeting. It's important to note that the previous output increases were only reversing cuts made since 2023 and didn't represent new production above pre-pandemic baselines. Last week, Saudi Aramco CEO Amin Nasser dismissed fears that OPEC output increases could lead to a glut, citing healthy and growing demand and global reserves that are well below the five-year average. Nonetheless, the potential re-entry of Venezuelan and Iranian oil, along with the expected resumption of production at Kazakhstan's Tengiz field next week, could help to soften oil prices further, an effect that will be compounded should the dollar also stabilise.
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