As tensions escalate in the Middle East, volatility has gripped oil markets after a period of a growing global surplus.
The most recent flashpoint came this week in Iran, where a civil conflict has engulfed the country. On Wednesday, the United States announced that it would withdraw, as a precautionary measure, some staff members from key military bases in the region.
The announcement sent the price of Brent crude, the global benchmark, above $66 a barrel in early trading, only for it to fall back later in the day after more conciliatory comments from the United States. The price had been rising steadily for a week, by more than 10%.
Before the recent events, the price of crude seemed to be trending lower. Global supplies were growing, especially with the prospect of additional production from Venezuela hitting the global market. Falling prices would bolster both the U.S. and global economy.
The surplus was expected to peak in the first quarter at between 2.8 million and 3.8 million barrels per day on the back of slowing demand growth and rising supplies from OPEC+, the United States and elsewhere.
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Some of this oil is sitting in tankers as producers look for a buyer or wait for prices to rise. There were 1.346 billion barrels on the water as of Jan. 9, either in transit or in floating storage,
This increased volume stems from a number of factors:
- Redirected oil: Traditional flows from sanctioned producers like Russia, Iran and Venezuela are redirected to different customers and regions.
- Shadow fleets: Some of the sanctioned oil has moved to shadow fleets that have a harder time finding a home.
- Longer shipping times: Buyers from now-sanctioned countries are having to replace those barrels from more-distant suppliers like the U.S., meaning longer shipping times.
Sanctioned producers like Iran and Venezuela have recently seen their floating storage volumes grow significantly. For example, Bloomberg reports that there are 29 million barrels of Venezuelan-produced oil at sea, with most of it in Asian waters.
China is estimated to have absorbed more than 1 million barrels of the surplus a day since mid-2025 into their strategic petroleum reserves, although there is no official data.
This total could grow if oil prices drop further, or, if China chooses to stop buying on a sustained basis, that shift in demand could cause a further drop in oil prices.
Last, if oil prices drop, the U.S. will almost certainly begin rebuilding its strategic oil reserves, which would on the margin put a floor under global oil prices.
