Crude oil prices surged on Wednesday, with Brent crude once again breaking through the $70 per barrel mark, reaching a peak gain of nearly 3% during the session. However, prices retreated significantly from their highs later in the day, closing with approximately half of the intraday gains. This price action underscores the heightened divergence in market sentiment.
Geopolitical factors are once again driving market anxiety. While former President Trump emphasized that negotiations with Iran would continue, the significant gap in positions and demands between the US and Iran has led to a generally pessimistic market outlook regarding the talks' prospects. Should negotiations fail, Trump is reportedly considering deploying an additional aircraft carrier strike group to the Middle East, with the US Department of Defense preparing for potential military action. Concurrently with the talks, the US continues to intensify sanctions against Iran and is reportedly discussing options to seize more tankers transporting Iranian oil, amplifying market concerns over geopolitical risks. Furthermore, renewed mutual attacks on energy infrastructure between Russia and Ukraine, including a drone strike on Volgograd on February 11th, could further constrain Russian oil production and exports, bolstering market sentiment.
The OPEC monthly report released on Wednesday maintained a positive outlook. OPEC+ total crude production averaged 42.45 million barrels per day (bpd) in January, a decrease of 439,000 bpd from December, primarily attributed to a production decline in Kazakhstan. Notable decreases were also observed in Iran and Venezuela. An earlier EIA monthly report also highlighted unexpected disruptions to crude production in the US and Kazakhstan since 2026, leading to short-term supply tightness and higher oil prices. Concurrently, cold weather in the Northern Hemisphere in January boosted oil demand, while these production disruptions were ongoing, further exacerbating upward pressure on prices. Despite recent supply tightness due to outages, the EIA still assesses that robust growth in global oil production will continue to outpace the growth in oil consumption, maintaining its view that global oil inventories will increase. The aforementioned supply-side disruptions are gradually easing. Recent reports indicate that production in Kazakhstan and Venezuela is recovering. The EIA's weekly report showed a substantial build of 8.93 million barrels in US crude inventories for the week ending February 6th, with domestic production rising by 498,000 bpd, signaling a rapid return to normalcy.
Geopolitical drivers are fueling market exuberance, supporting strong crude oil prices. Domestically, the high- and low-sulfur fuel oil sectors hit new highs during the night session. However, from a technical perspective, oil prices are showing clear signs of being overbought and in need of a correction. The recent tightness in supply is easing. Although prices remain firm due to geopolitical risks, the oil market's time spreads have not strengthened in tandem with the price rally. The market is caught between a geopolitically-driven bullish structure and accumulating technical correction pressures. The upcoming Spring Festival holiday period introduces significant uncertainty for oil prices. Given the ongoing US-Iran negotiations during this time, high volatility is highly probable, with geopolitical developments prone to causing sudden price swings. It is advisable to implement risk management measures in advance, consider reducing position sizes, and participate with caution.
Daily Market Movements: WTI crude oil futures gained $0.67, or 1.05%, settling at $64.63 per barrel. Brent crude futures rose by $0.60, or 0.87%, settling at $69.40 per barrel. INE crude oil futures increased by 0.82%, closing at 479.8 yuan. The US Dollar Index edged up 0.06% to 96.92. The Hong Kong Exchange USD/CNY rate was virtually unchanged, up 0.01% to 6.8953. The US 10-year Treasury yield was flat. The Dow Jones Industrial Average declined by 0.13% to 50,121.4.
Recent Key Developments: OPEC Monthly Report: OPEC+ total crude production averaged 42.45 million bpd in January, down 439,000 bpd from December, mainly due to lower output in Kazakhstan. Global demand for OPEC+ crude is projected to average 42.60 million bpd in Q1 2026 and 42.20 million bpd in Q2 2026 (unchanged from previous forecasts). Strong air travel demand and steady road traffic are expected to support oil consumption; a weaker US dollar provides additional support. OPEC maintained its global oil demand growth forecasts for 2026 and 2027 unchanged. Data shows Saudi Arabia's crude output increased by 13,000 bpd in January to 10.086 million bpd. Iraq's production rose by 38,000 bpd to 4.157 million bpd. Iran's production fell by 81,000 bpd to 3.129 million bpd. The UAE's output decreased by 14,000 bpd to 3.389 million bpd. Nigeria's production declined by 19,000 bpd to 1.478 million bpd. Libya's output fell by 6,000 bpd to 1.304 million bpd. Algeria's production decreased by 2,000 bpd to 968,000 bpd. Venezuela's output dropped by 87,000 bpd to 830,000 bpd.
EIA Report: US commercial crude inventories, excluding the Strategic Petroleum Reserve (SPR), increased by 8.53 million barrels to 429 million barrels. Crude stocks at the Cushing, Oklahoma, hub rose by 1.071 million barrels. SPR inventories were slightly reduced. Distillate fuel inventories decreased by 2.703 million barrels. Gasoline inventories increased by 1.16 million barrels. EIA Report: US domestic crude production for the week ending February 6th increased by 498,000 bpd to 13.713 million bpd. Crude oil exports decreased by 308,000 bpd to 3.739 million bpd. US crude oil imports averaged 6.805 million bpd, an increase of 604,000 bpd from the previous week.