Oil prices closed higher on Friday as investors covered short positions ahead of the extended U.S. weekend holiday, while keeping a close eye on the potential impact of escalating tensions between the U.S. and Iran on oil supplies.
Brent crude settled at $64.13 per barrel, up 0.58%, while West Texas Intermediate (WTI) futures closed at $59.44 per barrel, gaining 0.42%. Market analysts noted that the day’s gains were primarily driven by position adjustments made by investors to avoid risks from potential geopolitical events during the holiday period.
Although President Trump earlier hinted at possible military action amid Iran’s domestic protests, pushing oil prices to multi-month highs, he later stated that the situation had eased, leading to a significant pullback in prices on Thursday. The market remains concerned that an escalation could prompt Iran to block the Strait of Hormuz, a crucial global oil transport route. Meanwhile, expectations of a potential supply increase from Venezuela have partially offset price pressures, though actual supply has not surged into the market as anticipated.
The U.S. Department of Energy denied reports on Friday that the government was considering replenishing the Strategic Petroleum Reserve (SPR) through an exchange of Venezuelan crude for American crude. A spokesperson explicitly stated, “This is inaccurate; we are not currently considering using Venezuelan oil to replenish the SPR.”
Earlier reports cited sources indicating that the Trump administration intended to swap Venezuelan heavy crude for U.S. medium sour crude to bolster reserves. The report noted that the government planned to transfer Venezuelan crude to storage tanks near the Louisiana Offshore Oil Port before sending it to refineries.
The current U.S. Strategic Petroleum Reserve stands at approximately 414 million barrels, only 60% of its total capacity. Efforts to replenish inventories face challenges due to insufficient funding and maintenance requirements. The Energy Secretary previously mentioned that the government is exploring alternative solutions that do not involve direct use of public funds, including agreements with private companies. Last year’s relevant legislation allocated about $171 million for the SPR, far below the initial draft’s $13 billion.
According to data released by Baker Hughes, the number of active oil rigs in the U.S. increased by one this week compared to the previous week, bringing the total to 410 rigs. However, this remains 68 rigs lower than the same period last year.
In its latest outlook, the U.S. Energy Information Administration (EIA) projected that U.S. oil production this year will remain largely flat compared to 2025, staying at approximately 13.6 million barrels per day. However, by 2027, output may decline by 340,000 barrels per day due to continued slowdowns in drilling activities. Despite a 13% drop in rig counts last year, improvements in well productivity drove record-high overall production. Nevertheless, the EIA indicated that persistently low oil prices over the next two years could reduce drilling and completion activities, outweighing the positive effects of continued productivity gains.
According to a report by Phillip Nova analyst Priyanka Sachdeva, oil prices are expected to continue fluctuating within a range unless two key drivers emerge: a significant recovery in demand or ‘substantial bottlenecks’ in actual supplies from Russia and the Middle East. She noted that market sentiment largely dictates price movements, but the impact of oil-related headlines tends to be temporary.
The analyst cited examples where oil prices briefly rose due to news of Iran’s unrest and supply risks from Venezuela but quickly retreated afterward. She added that projections from major forecasting agencies and industry data indicate an increasingly oversupplied oil market, which could continue to suppress upward price momentum. Therefore, sanctions and news events tend to cause short-term volatility rather than genuine physical supply shortages.
Fitch Ratings released a report stating that due to ample supply in the global oil market, the risk premium on oil prices caused by geopolitical factors will remain constrained. The report noted that even if there is a potential disruption of supply from Iran, the existing surplus in global supply is sufficient to absorb the shock. Additionally, the potential increase in Venezuela’s supply in the short term is expected to be relatively limited.
Fitch forecasts that on top of the approximately 3 million barrels per day increase in global supply in 2025, this year’s supply is expected to grow further by 2.5 million barrels per day. Meanwhile, demand is projected to increase by only about 800,000 barrels per day annually. Based on this supply and demand dynamic, Fitch assumes the price of Brent crude for 2026 will be $63 per barrel.
The report also pointed out that significant disruptions to Iran’s oil production could still push up oil prices, but given the overall current excess supply, the impact is expected to be limited.
Regarding the situation in Iran, although Trump stated at the White House on January 16 local time that he had “convinced himself” to postpone military action against Iran, vigilance remains necessary over the weekend to monitor ongoing geopolitical uncertainties. Barclays noted that limited U.S. strikes on Iran could quickly erase a $3 to $4 per barrel geopolitical oil premium.
