By: Alex Hodes, Energy Analyst - KC Energy
Key Takeaways:
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It’s been a volatile start to the year in oil markets. January brought everything at once: brutal cold, a fresh round of sanctions and market congestion that was at risk of provocation. For a time, prices surged as traders scrambled; but conditions seem to be settling, for now.
But where does that leave us?
Alex Hodes, StoneX Direct of Energy Market Strategy and Trevor McClanahan, Energy Risk Manager from Focus on Fuels unpacked what’s happening, and their overview is: uncertainty is the only thing that’s certain.
For months, oil prices had been stuck in a range, grinding sideways despite a backdrop of provocative headlines. That’s the kind of thing say Hodes and McClanahan that builds pressure under the surface—what traders call a coiled spring—looking for the right catalyst to send prices in one direction or the other.
January delivered that catalyst.
“The biggest driver, in my opinion, was the weather,” McClanahan said. A deep freeze swept in, hammering demand for heating fuels. Add to that a new round of sanctions on Russia, with developments unfolding quickly.
Options positioning helped fuel the rally, too. “Implied volatilities were near historic lows, and managed money was net short,” Hodes pointed out. “Once the headlines hit, it was a squeeze higher.”
That said, the weather has since eased up, and prices reflect the moderation, at least for the moment.
The next big question is how aggressive the Trump administration is going to be on sanctions.
“Iran’s been under sanctions for years, but exports have still grown - by almost a quarter from 2023 to 2024,” McClanahan said. “So the big question is: will Trump really enforce them?”
Hodes believes it depends on one thing: OPEC.
“Trump wants oil under $80 a barrel. That’s a line in the sand for him. To make that happen, he needs OPEC to add barrels,” he explained. “If they do, expect tougher sanctions on Iran and Russia. If they don’t? We might see a softer approach—something more like Biden’s strategy.”
For now, they say, OPEC is defending Brent around $70 and WTI near $65. If supply stays tight and Trump clamps down on exports from sanctioned countries, those floors could come under pressure.
Even if the U.S. tightens the screws, that doesn’t mean the oil disappears.
Russia and Iran have gotten good at getting crude to market outside official channels. The so-called ‘dark fleet’ is moving an estimated 3 to 4 million barrels per day, using ship-to-ship transfers in places like Malaysia and the UAE to obscure the origin of their barrels.
“The question is, how serious will enforcement be?” McClanahan asked. “Will there be real consequences for companies helping move this oil? That’s what will determine whether these sanctions have teeth.”
So far, Iranian crude loadings have only dipped slightly - not exactly a dramatic slowdown. But if that changes, markets will take notice.
While geopolitics are driving the headlines, there are also quieter supply risks brewing.
Gulf Coast refiners have been cutting utilization rates - some of it planned, some of it unplanned. The recent cold snap shut down operations at multiple sites, adding to the strain. At the same time, inventories are draining fast.
The latest DOE report showed a 12-million-barrel draw across petroleum stocks, with propane and diesel seeing the biggest declines. That kind of tightness should be supportive for prices, but U.S. refining capacity has expanded enough that it has yet to trigger major spikes.
Then there’s the wildcard of Canadian tariffs.
Sixty percent of U.S. crude imports come from Canada. If tariffs go through, refiners - especially in the Midwest - are going to feel it. “They don’t really have alternative supply routes,” Hodes pointed out. “So even if it gets more expensive, they’ll probably just pay up.”
Both Hodes and McClanahan see the current supply picture as about as tight as it’s going to get this year.
“I don’t see crude breaking below $65,” McClanahan said. “But with a president who isn’t afraid to shake things up, we’re going to see price spikes.”
Hodes agreed. Any dip into the high $60s could be a buying opportunity for those looking to hedge against volatility.
For now, the market has taken a breather. But that could change quickly. Sanctions enforcement, OPEC decisions, and refinery issues are all still in play. The next big move could come sooner than traders expect.
Stay ahead of market moves with Focus on Fuels, StoneX's essential podcast for energy and fuel market participants. Each episode features Alex Hodes and Trevor McClanahan breaking down market developments. You’ll also hear from industry experts who explore hedging strategies and practical insights for managing price volatility. Available on all major podcast platforms, including Apple Podcasts, Spotify, or YouTube.
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---Written by: Andrew Catsimanes, Copywriter
---Experts: Alex Hodes, Director of Energy Market Strategy and Trevor McClanahan, Energy Risk Manager
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