Specious Argument

Last month, I wrote the following:

With the US threatening Iran with military force, and as long as the situation remains tense and uncertain, for February I expect West Texas Intermediate oil prices to range between $60 to $70 per barrel. If the situation is resolved peacefully, then I expect oil prices to drop into the mid- to high $50s or low $60s. If the situation becomes kinetic, then all bets are off.

…

Of course, the only item currently known that really matters for February 2026 is whether the US decides to launch military action against Iran. I am hoping that the two sides can reach an agreement without the use of force. My expectation, however, is that the US will take some type of action against Iran.

Those were my thoughts at the end of January. Events have since taken a dramatic turn.

Overnight into Saturday, February 28, I learned that Israel and the United States had launched coordinated strikes against Iran. Because the situation has become kinetic, all bets are off. That means it is impossible to know what to expect regarding West Texas Intermediate oil prices in the days and weeks ahead—other than that WTI should trade higher than Friday’s close of about $67. How much higher depends on how the conflict unfolds.

I currently hold some short WTI put options with strike prices well below Friday’s close; these expire this Friday, March 6. Once they expire, my plan is to sit on my hands and take no new positions until the conflict ends. No one knows how long that will take—it might be days or weeks.

Traders everywhere are waiting for the all-clear signal to short oil. So as the conflict winds down, many expect a sharp reversal. Commodities often overshoot on both the upside and downside. Do not be surprised, therefore, if WTI drops to the mid-$50s—or even lower—once the war ceases and shorts pile in.

Energy Aspect’s Amrita Sen and Jeff Currie provided an interesting and helpful discussion in “Jeff Currie – The ‘global oversupply myth’ and return of the old economy | EA Forum Ep. 15.” The “global oversupply myth” seems to be losing some traction. Currie appears quite bullish, discussing the possibility of oil hitting $250. That price seems too high to me. Even so, it is always good to consider viewpoints different from your own. No one has a crystal ball.

Wrapping up, because of the war with Iran, all bets are off. I do not have a price forecast for the period ahead. Instead, I am waiting for the conflict to end before reassessing the WTI oil price environment.

I hope the war is brief with a minimum of harm. And equally, I hope the Iranian people gain their freedom and are able to fully participate in the global community.

Disclosure: Short WTI put options.

With the US threatening Iran with military force, and as long as the situation remains tense and uncertain, for February I expect West Texas Intermediate oil prices to range between $60 to $70 per barrel. If the situation is resolved peacefully, then I expect oil prices to drop into the mid- to high $50 or low $60s. If the situation becomes kinetic, then all bets are off.

During the month of January, there was the capture of Maduro, the Venezuelan leader, severely reduced output from Kazakhstan because of damage to the Caspian Pipeline Consortium (CPC) terminal on the Black Sea and other issues, and the uprising in and confrontation with Iran. Those are a lot of developments for one month.

Late last year, expectations were for low oil prices in the first quarter. Bloomberg, for example, published an article on December 18 “The World Is Awash With Oil and Prices Are Poised to Keep Falling” (subscription required). In fact, many oil analysts anticipated two to three-million-barrels-per-day inventory builds that have not occurred. My expectation is that they will not occur during the first quarter of the year.

Of course, the only item currently known that really matters for February 2026 is whether the US decides to launch military action against Iran. I am hoping that the two sides can reach an agreement without the use of force. My expectation, however, is that the US will take some type of action against Iran.

Before continuing, I should state that I generally dislike when others project confidently what is about to happen next in the geopolitical arena. The reality is that none of us can say with certainty; not even the prime actors themselves are certain. From my readings, I am making a guess as to what I expect. My guess is not firmly held; in fact, I am not even putting money at risk in the direction of my expectations.

I am not confident that the US achieved its complete objectives during the Iran war in the summer of 2025. It seems to be asserting a harsh negotiating position that some consider as nonstarters. And the US has put sufficient military assets in place in the Middle East to wage conflict.

On January 28, the Financial Times published “Trump‘s armada: the US military force assembled against Iran” (subscription required).

The USS Abraham Lincoln, one of the US‘s 11 aircraft carriers, entered Middle Eastern waters this week after an 11-day transit from the South China Sea. Its arrival highlights Donald Trump‘s escalating threats to strike Iran for the second time in less than a year.

Accompanying the vessel on Monday were three guided-missile destroyers — part of the “beautiful armada” the US president has ordered towards Iran. It is the largest build-up of US military assets in the region since B-2 bombers dropped 30,000lb bombs on two of the Islamic republic‘s nuclear facilities and fired missiles at a third in June last year.

“This looks like the US is planning to use military force”, both offensively and defensively, said Seth Jones, a former Pentagon and US special operations official. “What is less clear [are] the objectives.”

So now, traders and investors sit and wait. Again, my strong preference is for a peaceful settlement. I am not positioned for a spike in oil prices should kinetic action occur. If prices do spike higher, then I will wait until the smoke clears before taking investment decisions. It could be over quickly, and then normality resumes with WTI prices in the mid- to high $50s or low $60s. Conversely, the situation may become more complicated, and prices stay at an elevated level.

If I believe that conflict is more likely than not, why am I not positioned accordingly? Because I do not hold a strong view. And because others with far more information—such as satellite pictures and more—will react faster and more accurately than I ever could. I prefer to sit this situation out until I have more clarity.

Just to recapture my main point: As long as status quo remains, I expect WTI to range between $60 to $70 per barrel. If peaceful resolution is reached, I anticipate that WTI prices will drop into the mid- to high $50 or low $60s. If the situation becomes kinetic, all bets are off.

Let us hope for a peaceful resolution to the Iranian situation and hope that Iranians themselves gain more freedom and prosperity.

Disclosure: Short WTI put options.

I reduced my January West Texas Intermediate oil price forecast by $2.50 per barrel: WTI prices should range between $52.50 and $62.50 per barrel. Last month, I expected WTI oil prices to remain in the high $50s or low $60s. Prices stayed predominantly in the upper $50s. With prices closing on Friday, December 26, at about $57.00 per barrel, it is not inconceivable that prices will dip below $55 during the month of January. I expect that WTI prices will range in the mid- to upper $50s throughout January.

In December, oil prices often had exaggerated moves in response to an announcement or development in the war in Ukraine or Venezuelan negotiations with the US. Otherwise, prices were relatively stable.

The overall bias appears to be bearish, though I do not share the extreme bearishness. Pundits have been warning for a long time about the tsunami of oil about to wash up on shore because of the extreme volumes of oil on water. Yet week after week, the EIA reports reasonable inventory values. Although it is not as important as it once was, the inventory levels at Cushing are low.

Let us have a look at some of the bearish commentary.

On December 9, the Financial Times published “Oil market faces ‘super glut’ as supply surge hits prices” (subscription required) where it stated:

The oil market faces a “super glut” next year as a burst of new supply collides with weakness in the global economy, one of the world’s biggest commodity traders has warned.

Saad Rahim, chief economist of Trafigura, said on Tuesday that new drilling projects and slowing demand growth were likely to weigh further on already depressed crude prices next year.

“Whether it’s a glut, or a super glut, it’s hard to get away from that,” Rahim said in remarks alongside the company’s annual results.

You can watch Trafigura’s comments on YouTube. Normally, I would embed the video, but the video owner requires viewing on YouTube itself.

On December 18, Bloomberg published “The World Is Awash With Oil and Prices Are Poised to Keep Falling” (subscription required). It stated:

Virtually all of the world’s biggest traders see the oil market in a state of oversupply early next year — the only question is by how much. The International Energy Agency estimates that output could exceed consumption by around 3.8 million barrels a day in 2026. Many traders predict smaller numbers than that, but storage levels are still expected to grow.

When that happens, oil prices usually fall. Global benchmark Brent crude is down 20% this year to trade near $60 a barrel. Trafigura, one of the world’s top commodities traders, says oil could be in the $50s through the middle of the year before recovering into the end of 2026.

“It’s a market where everybody agrees what’s going on,” Ben Luckock, global head of oil at the firm, said in an interview. “Prices should be lower, but they can’t be because there’s a war going on in Ukraine still.”

The IEA has a history of being overly bearish, so I tend to discount its forecasts. We have already discussed Trafigura. And regarding the war in Ukraine, I am not as confident that a cessation of hostilities will lead to lower oil prices on a sustained basis. Russia is already producing as much as it can. Ukraine has disabled several Russian oil refineries. When the war stops, Russia will be able to repair its refineries and produce more oil products, resulting in reduced oil exports. And with a cessation of hostilities, there will be a massive rebuilding effort underway in Ukraine and a more confident outlook in Europe generally. Decreased oil exports from Russia and increased economic activity in Ukraine and Europe may lead to a strengthening of oil prices after the initial Pavlovian reaction of lower oil prices once the fighting stops.

The article also discusses breakeven prices required by various OPEC countries to balance their budgets. Those breakeven prices are irrelevant because current supply and demand dictate oil prices. If oil is plentiful and expected to remain so, OPEC countries are not going to reduce oil production in hopes of raising prices. Cutting back oil production would simply allow others to gain market share. Instead, global supply and demand will dictate oil prices, and OPEC governments, like any other government, will need to adjust their budgets to align themselves with market realities.

Again on December 18, Eric Nuttall provided some optimism in an X post:

In his post, Nuttall seems to suggest that after 2026, the future for oil prices looks much better. I tend to agree with his assessment.

At around December 18, Paul Sankey in his Sankey Research channel on YouTube gave a great overview of the trends and developments:

Sankey was one of the more bearish voices, and I believe he is still quite bearish. I am not as bearish as him, nor am I bullish. In fairness to my comments about Sankey, I also did not think WTI prices would hit the $50s, and here we are in the $50s. In any event, Sankey’s YouTube is worth viewing.

Around December 19, Eric Nuttall provided his year-end review:

Unlike most others, Nuttall is far less bearish than others I have mentioned. He expects prices to rise through 2026. His YouTube is a must view.
Circa December 20, Bloomberg published the following YouTube “Oil Prices Poised to Keep Falling With World Awash in Supply.”

Aside from the bearish title, I did not glean much from this video. But it does show that the sentiment is extremely bearish.

On December 22, John Kemp posted on X that “investors have turned exceptionally bearish about the outlook for crude oil prices, anticipating a large accumulation of inventories next year, and shrugging off the impact of the U.S. embargo on oil exports from Venezuela.”

This extreme bearish positioning is actually bullish because most everyone who wanted to get bearish is already bearish.

At about December 23, CNBC published the following YouTube “Crude Oil Prices Fell 20% in 2025: What to Expect in 2026? | Commodity Champions.”

I did not learn much from this eleven-minute interview. The guest’s views seemed largely in line with IEA’s views.

So with all this bearish commentary, why am I not more bearish myself? Because despite all the bearish commentary of a glut of oil on water, we have not seen onshore inventories react. The EIA inventory reports show typical historical inventory numbers for this time of year. Am I bullish then because inventory numbers are reasonable and many of the pundits are bearish? No, I am neutral. While the oil markets rebalance themselves, I am expecting oil prices to remain around current levels.

Of course, significant geopolitical events can move oil prices beyond that range. A cessation of hostilities between Russia and Ukraine may temporarily depress prices, though I expect prices to bounce back once the reality of no increase of Russian oil exports sets in. Some make the argument that there is a lot of Russian oil on water, and once the sanctions are lifted, that will be a temporary release of oil to the markets. Perhaps, but even if true, it will be for a short duration only.

In summary, I expect WTI to predominantly range between $55-$60 per barrel, with $2.50 per barrel of wiggle room on either side. Despite all the bearish commentary, EIA inventory reports remain typical for this time of year.

I want to wish everyone a Happy, Healthy, and Prosperous New Year!

Disclosure: Short strangle (short calls and short puts) on WTI crude oil futures.

My December West Texas Intermediate oil price forecast remains unchanged from November: December WTI prices should range between $55 and $65 per barrel. Last month, I commented that I expected WTI oil prices to remain in the high $50s or low $60s. For the most part, I was correct. I expect the same for December.

There have not been any dramatic changes during the past month. Of course, in late November, the US administration began intensive talks with Ukraine and Russia in hopes of bringing an end to the war. My expectation is that talks will last past the New Year. Be warned, though, that no one, not even the participants themselves know how future discussions will unfold. Because the exchanges among the three parties—the US, Russia, and Ukraine—so far have shown little common ground, it will likely take a prolonged period to reach resolution, especially with the holiday season coming up.

And the US has taken aggressive action toward forcing out President Maduro from Venezuela. It has deployed a massive naval task force, including the aircraft carrier USS Gerald R. Ford, about a dozen navy ships, several thousand sailors and Marines, F-35 stealth jets, and more. The US has also closed Venezuela’s airspace, though unconfirmed by the FAA or ICAO, and has increased concerns of aerial enforcement. Aside from threatened brute force, the US has also employed diplomatic and economic measures against Venezuela. Because of the massive effort that has been expended so far, the US is almost certainly going to do something soon. If it were to simply walk away, that may send a dangerous signal to its adversaries. While I hope Maduro steps aside, I have no idea how this situation will play out.

The price effects from geopolitical developments are nearly impossible to assess in advance because there are simply too many unknowns. Looking back after the fact, the outcome may have seemed obvious. Going forward, however, it is nearly impossible.

I always enjoy viewing Paul Sankey’s YouTubes. Here is his latest:

Similarly, I enjoy Eric Nuttall’s YouTubes, and here is his latest:

As we approach the end of the year, I am curious to see if the pundits change their outlook for next year. We have been hearing a lot about oil on water and endless oversupply, yet oil prices have remained stable. If prices remain stable into year end, will that development cause others to reevaluate their outlooks?

While I expect oil prices to range between $55 and $65 per barrel, geopolitical events, good or bad, may sway oil prices from my range. As mentioned earlier, geopolitical events are impossible to assess in advance.

I wish everyone a Happy, Healthy, and Prosperous Holiday Season!