Geopolitical tensions in Iran intensified this week, driving up crude oil's geopolitical risk premium and pushing oil prices higher. OPEC+ has decided to pause production increases in the first quarter of 2026, and future output decisions will be based on market conditions, a move expected to alleviate market concerns about the supply side. The main views of EB SECURITIES are as follows.
The situation in Iran drove significant weekly volatility in oil prices, with geopolitical uncertainty providing a bullish foundation. As of January 16, 2026, Brent and WTI crude futures settled at $64.20 and $59.22 per barrel, up 1.9% and 0.7% from the previous week's close, respectively. By January 17, the US had not decided on military action against Iran, opting instead for economic pressure through new sanctions on officials involved in suppressing nationwide protests, suggesting the price surge from this event may be ending. However, with continued US sanctions on Iranian officials and entities funding its oil trade, the risk of escalation in US-Iran conflict remains. Iran's average monthly crude production from January to December 2025 was 3.26 million barrels per day; further escalation could significantly impact its production and exports. Long-term international instability suggests geopolitical uncertainty will underpin a strong oil price environment.
OPEC+ increased production by 2.21 million barrels per day throughout 2025, and a cautious approach to increases in 2026 is expected to improve the crude oil supply-demand surplus. In its January 2026 monthly report, OPEC forecasts 2026 crude demand growth of 1.38 million barrels per day and, for the first time, predicts 2027 growth of 1.34 million barrels per day. On the supply side, OPEC+ total production in December 2025 was 42.831 million barrels per day, with a cumulative annual increase of 2.206 million barrels per day. This significant expansion was a key factor in 2025's market volatility, but since Q4 2025, OPEC+ has slowed its increase, demonstrating a willingness to balance prices. The decision to pause increases in Q1 2026, with future output contingent on market changes, should ease supply-side worries.
Crude oil demand expectations have improved, warranting focus on 2026's marginal supply-demand shifts. Benefiting from improved macroeconomic and trade prospects, the IEA's December 2025 report projected 2026 global crude demand growth of 860,000 barrels per day, an upward revision of 90,000 barrels per day from the previous month. The IEA expects petrochemical feedstock demand to lead growth in 2026, potentially increasing its contribution from 40% in 2025 to 60%. On the supply side, due to OPEC+'s pause and intensified sanctions on Russian and Venezuelan crude, the IEA forecasts 2026 global supply growth of 2.40 million barrels per day, a slight downward revision of 20,000 barrels per day. With the Federal Reserve restarting its rate-cutting cycle and global trade conflict risks remaining uncertain, it is advisable to monitor how changes in 2026 demand expectations impact oil prices.
The "Three Barrels of Oil" have demonstrated notable resilience during price volatility, sustaining optimism for their ability to navigate cycles. In the new oil price volatility cycle since 2023, PetroChina and CNOOC have achieved performance levels exceeding historical averages for similar price periods, thanks to rising production and superior cost control, with profit growth also outperforming international oil majors. Looking ahead to 2026, the "Three Barrels" will maintain high capital expenditure, continue expanding in the natural gas market, and accelerate the transformation of midstream and downstream refining businesses, positioning them for long-term growth that transcends oil price cycles.
Risk analysis includes potential shortfalls in upstream capital expenditure growth and significant fluctuations in crude oil and natural gas prices.
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