Falling back this morning. Brent crude traded from an intraday low of $59.75/b last Monday to an intraday high of $63.92/b on Friday and a close that day of $63.34/b. Driven higher by the rising riots in Iran. Brent is trading slightly lower this morning at $63.0/b.

Iranian riots and risk of supply disruption in the Middle East takes center stage. The Iranian public is rioting in response to rapidly falling living conditions. The current oppressive regime has been ruling the country for 46 years. The Iranian economy has rapidly deteriorated the latest years along with the mismanagement of the economy, a water crisis, encompassing corruption with the Iranian Revolutionary Guard Corps at the center and with US sanctions on top. The public has had enough and is now rioting. SEB’s EM Strategist Erik Meyersson wrote the following on the Iranian situation yesterday: ”Iran is on the brink – but of what?” with one statement being ”…the regime seems to lack a comprehensive set of solutions to solve the socioeconomic problems”. That is of course bad news for the regime. What can it do? Erik’s takeaway is that it is an open question what this will lead to while also drawing up different possible scenarios.

Personally I fear that this may end very badly for the rioters. That the regime will use absolute force to quash the riots. Kill many, many more and arrest and torture anyone who still dare to protest. I do not have high hopes for a transition to another regime. I bet that Iranian’s telephone lines to its diverse group of autocratic friends currently are running red-hot with ”friendly” recommendations of how to quash the riots. This could easily become the ”Tiananmen Square” moment (1989) for the current Iranian regime.

The risks to the oil market are:

1) The current regime applies absolute force. The riots die out and oil production and exports continue as before. Continued US and EU sanctions with Iranian oil mostly going to China. No major loss of supply to the global market in total. Limited impact on oil prices. Current risk premium fades. Economically the Iranian regime continues to limp forward at a deteriorating path.

2) The regime applies absolute force as in 1), but the US intervenes kinetically. Escalation ensues in the Middle East to the point that oil exports out of the Strait of Hormuz are curbed. The price of oil shots above  $150/b.

3) Riots spreads to affect Iranian oil production/exports. The current regime does not apply sufficient absolute force. Riots spreads further to affect oil production and export facilities with the result that the oil market loses some 1.5 mb/d to 2.0 mb/d of exports from Iran. Thereafter a messy aftermath regime wise.

Looking at the oil market today the Brent crude oil price is falling back 0.6% to $63/b. As such the oil market is assigning very low risk for scenario 2) and probably a very high probability for scenario 1).

Venezuela: Heavy sour crude and product prices falls sharply on prospect of reduced US sanctions on Venezuelan oil exports. The oil market take  on Venezuela has quickly shifted from fear of losing what was left of its production and exports to instead expecting more heavy oil from Venezuela to be released into the market. Not at least easier access to Venezuelan heavy crude for USGC refineries. The US has started to partially lift sanctions on Venezuelan crude oil exports with the aim of releasing 30mn-50mn bl of Venezuelan crude from onshore and offshore stocks according to the US energy secretary Chris Wright. But a significant increase in oil production and exports is far away. It is estimated that it will take $10bn in capex spending every year for 10 years to drive its production up by 1.5 mb/d to a total of 2.5 mb/d. That is not moving the needle a lot for the US which has a total hydrocarbon liquids production today of 23.6 mb/d (2025 average). At the same time US oil majors are not all that eager to invest in Venezuela as they still hold tens of billions of dollars in claims against the nation from when it confiscated their assets in 2007. Prices for heavy crude in the USGC have however fallen sharply over the prospect of getting easier access to more heavy crude from Venezuela. The relative price of heavy sour crude products in Western Europe versus Brent crude have also fallen sharply into the new year.

Iran officially exported 1.75 mb/d of crude on average in 2025 falling sharply to 1.4 mb/d in December. But it also produces condensates. Probably in the magnitude of 0.5-0.6 mb/d. Total production of crude and condensates probably close to 3.9 mb/d.

The price of heavy, sour fuel oil has fallen sharply versus Brent crude the latest days in response to the prospect of more heavy sour crude from Venezuela.

Lower this morning as Rodriguez opens for US cooperation. Brent crude is down 1.4% to USD 69.95/b this morning. The acting president in Venezuela, Delcy Rodriguez, has struck a much more conciliatory tone and offered to cooperate with the US. This reduces the risk for an extended embargo on Venezuelan oil exports with oil potentially flowing freely out of Venezuela in not too long if Rodriguez actually do cooperate as the US whishes.

Venezuela is not a big oil producer today. It produced 960 kb/d in November. At the same time it consumes some 400 kb/d with net to the world exports of only 560 kb/d. Supply risk to the global oil market is thus very limited as it stands today.

Venezuela produced closer to 2.4 mb/d in 2015. But years of corruption plus US sanctions has eroded production capacity. Its oil infrastructure is worn down. Engineers who could get jobs in other countries have left. 

What makes everyone lift their eyebrows over Venezuela with respect to oil is that it has the world’s largest oil reserves. The idea is that US capital coupled with Venezuelan oil reserves could lead to a major upturn in oil production. But it will require billions and billions of dollar and also time to drive production higher.

China has poured billions into infrastructure in Venezuela with most of it lost due to corruption. While Rodriguez now has opened for cooperation with the US, the corrupt regime under Maduro is probably still fully intact. It may not be all that safe for US oil majors to pour billions in capex into Venezuela.

Venezuela has the potential to produce significantly more oil. But lots of money and time to materialize it. Yes, it has the world’s largest oil reserves, but the world is full of oil reserves. The key question is thus more about where do you want to place your capex? What reserves will yield the greatest returns and the lowest risks versus corruption and geopolitics? Impressions from latest headlines is that US money is already knocking on the door in Venezuela, but it is too early to say whether such a dollar-flow will really materialize in the end or not.

The global oil market in 2026 will not be about Venezuela. It will be about OPEC+ balancing act between oil price and market share. Making cuts or not. The IEA projected in December that the world will only need 25.6 mb/d from OPEC in 2026 versus a production in November of 29.1 mb/d. If the IEA is correct then the OPEC will need to cut production by 3.5 mb/d to keep the oil market balanced.

Brent crude is at USD 69.95/b and OPEC+ confirmed this weekend that it will keep production unchanged in Q1-26. The consequence is that the oil price is heading lower by the week. We expect OPEC+ to shift from ”hold” to ”cut” as Brent crude moves to the low 50ies.

Venezuela crude oil production in mb/d

Production by OPEC versus what IEA projects is needed by the group in 2026.

Global observable oil inventory level according to the IEA in December.

Brent fell 2% yesterday to $62.49/b and is trading slightly lower this morning at $62.4/b. It is being pushed  towards the 60-line by the booming amount of oil at sea. Oil at sea has increased by 2.5 million barrels every day since mid August and it keeps on moving higher. Last week it increased by 2.0 mb/d and stands at 1398 mb and the highest since Vortexa data in Bloomberg started in 2016. Higher than the previous peak in May 2020 when both Russia and Saudi Arabia had opened their taps on full throttle during that spring while global demand collapsed due to Covid-19.

The only reason why Brent crude hasn’t fallen faster and deeper is because of the US sanctions related to Rosneft and Lukoil which were announced on 22 October. Brent touched down to the 60-line only two days ahead of that announcement with almost all front-end backwardation in the Brent curve gone on 20 October. These new sanctions didn’t prevent Russian oil from coming onto water, but it added a lot of friction to the offtake of Russian crude oil. Brent crude bounced to $66.78/b just a few days after the sanctions were announced and the front-end backwardation strengthened again. Lots of oil at sea, and rising, but much of it hard to touch as they were Russian barrels.

But these sanctions are predominantly just friction. Russian crude keeps flowing into the global market and from there it gradually merges into the general stream of oil in the global market with ship to ship transferers and blending in pools of other oil. Frictions and delays, but it keeps flowing.

The global market has implicitly been running a surplus of 2.5 mb/d since mid-August. The easy read of the oil at sea from Vortexa is that the global oil market has been running a surplus of some 2.5 mb/d since mid-August and that the market keeps running a surplus of such magnitude.

The blob of oil at sea will eventually come on shore. Eventually the current huge blob of oil at sea will move onshore where the sensation of rising crude oil stocks will be more tangible and explicit.

Yet higher stock build in Q1 as global demand falls by 1.5 mb/d. Global demand in Q4 is usually weaker than in Q3 and Q1 demand is usually significantly weaker than Q4. Thus the rate of increase in oil at sea or oil in onshore stocks will likely be an even stronger force as we move into Q1-26 when global demand is about 1.5 mb/d lower than in Q4-25.

First price tumbles. The OPEC+ steps in with cuts. The rapid rise in crude stocks at sea or onshore is set to continue until OPEC+ says ”STOP”. The order of events is: a) The price tumbles into the low 50ies and then b) OPEC+ steps in with fresh cuts. Typically in that sequence.

And yes, we do expect OPEC+ to make adjustments and cutbacks in production when the Brent crude oil price tumbles to the low 50ies.

Crude oil at sea shooting higher at an average rate of 2.5 mb/d since mid-August and 2.0 mb/d last week. Increasingly pushing Brent crude lower but with friction and delay as much of the oil at sea is Russian or Iranian oil with sanctions attached.