Geopolitical Tensions and Supply Shifts Propel Oil Past $70, Challenging Glut Narrative
Oil prices staged a sharp rally on Wednesday, catapulting Brent crude above the psychologically significant $70-per-barrel threshold amid heightened fears of a direct U.S.-Iran military confrontation. The surge, which saw Brent for March delivery jump 3.6% to $70.92, marks a dramatic reversal from the oversupply concerns that dominated markets last year.
The immediate catalyst was reporting that the U.S. administration is considering targeted strikes against Iranian military positions. This geopolitical flashpoint has reignited the traditional 'risk premium' in oil markets. The tensions are set against a backdrop of prolonged domestic unrest in Iran, sparked by economic turmoil and a currency in freefall. The Iranian rial has collapsed from around 25,000 to the dollar a decade ago to nearly 1.5 million today, fueling inflation and protests.
In a notable shift, analysts at Standard Chartered argue the pervasive bearish narrative of a supply glut has weakened. "The market's focus is pivoting," the bank noted in its latest update. "Traders are looking past the inventory builds of late 2025 toward a more constructive supply-demand balance in the second half of 2026." This view is supported by upward revisions to global demand forecasts, including from the International Energy Agency (IEA), which now sees stronger petrochemical demand offsetting slower gasoline growth.
On the supply side, sustained lower prices are finally curbing U.S. shale output. In a symbolic move, Continental Resources, founded by shale pioneer Harold Hamm, has idled drilling rigs in North Dakota's Bakken shale for the first time in decades—a direct response to evaporating margins. "The message from the shale patch is clear: at these prices, growth is unsustainable," said a veteran Houston-based trader. The Bakken's average breakeven is estimated near $58 per barrel.
The energy complex's volatility isn't confined to oil. U.S. natural gas markets have been rocked by an Arctic blast, sending prices to their highest since 2022. The supply crunch forced emergency oil-fired power generation in the Northeast and triggered a massive short-covering rally. Meanwhile, the global LNG landscape is transforming, with U.S. export capacity poised for its fastest expansion since 2019, set to solidify America's dominance in the seaborne gas trade.
Market Voices:
"This is a classic 'geopolitical spike,' but the underlying fundamentals are shifting too," commented Michael Rossi, a portfolio manager at Clearwater Capital. "The shale slowdown is real, and if demand holds steady, the floor for prices is higher than many think."
"The administration is playing with fire," argued Sarah Chen, an independent geopolitical risk analyst. "Using military threats to influence oil prices is reckless and destabilizing. This isn't a market correction; it's a crisis being leveraged for political and financial gain. The human cost in the region is ignored while traders profit."
"From our logistics viewpoint, the LNG build-out is the real story," noted David Weller, a shipping executive based in New Orleans. "The new export capacity coming online will permanently alter global gas flows and provide a long-term buffer against regional supply shocks."
While Standard Chartered maintains a cautiously optimistic outlook, forecasting an average in the low-to-mid $60s for 2026, the break above $70 signals that markets are entering a new phase where geopolitical risk and structural supply adjustments are overpowering last year's glut narrative.
Analysis by Alex Kimani for Oilprice.com