Why Oil’s Early 2026 Gains Look Fragile

Oil prices kicked off 2026 a touch higher, but the market mood remains cautious. After a tough 2025 that saw the sharpest annual decline since 2020, traders remain wary of reading too much into small price moves.

In early Asian trade, Brent crude was up 14 cents at $60.99 a barrel. US West Texas Intermediate also rose 14 cents to $57.56 a barrel. But were the modest gains news-driven, or is there something fundamental going on?

Why Did Oil Prices Rise at the Start of 2026?

Reports of Ukrainian drone attacks on Russian oil facilities, along with the pressure on Russia’s energy assets in recent months, have brought energy infrastructure back into focus.

So far, these strikes have not caused major supply disruptions. Russian oil is still flowing. But the risk of escalation was enough to push prices slightly higher after months where markets had mostly shrugged off the conflict.

Russia and Ukraine also traded accusations of civilian attacks on New Year’s Day. This came even as talks overseen by US President Donald Trump continue in an effort to end the nearly four-year conflict. The talks are ongoing, but fighting on the ground has not eased.

Meanwhile, the United States has tightened the screws on Venezuela’s oil sector by imposing sanctions on four companies and several oil tankers linked to Venezuelan crude exports. These sanctions aim to disrupt parts of Venezuela’s export network, although some crude is still reaching buyers despite the added compliance risks and logistical complications.

State-owned producer PDVSA has had to rely on temporary workarounds as fuel inventories build up and refinery operations come under strain. While exports have not stopped, the added friction has led to near-term uncertainty.

Why are Oil Prices Still Under Pressure?

Geopolitical headlines may move prices for a day or two, but they have not removed large volumes of oil from the system. Russian exports are holding up, and Venezuelan crude is still finding its way to buyers.

The bigger issue is supply, especially from the United States. Production is running at record levels. According to the Energy Information Administration, US crude output hit 13.87 million barrels per day in October 2025.

Inventory data tells a similar story. While US crude stocks fell last week, gasoline and distillate inventories rose. So, refiners are producing more fuel, but demand is not growing fast enough to absorb it all.

What Should Investors Watch as 2026 Unfolds?

However, where investors are concerned, attention is expected to remain anchored on supply growth rates, inventories, and refinery margins. As long as US oil output remains close to record levels, price rallies will be difficult to sustain.

On the demand side, a stronger recovery in Asia, coupled with increased industrial activity in Europe, could aid in price recovery. However, in the short term, price action may remain abrupt and brief.

Trading in 2026 starts off as reactive to market news, but the bigger picture suggests a cautious mood.

Sources:

CNBC