Week Ending January 9

Oil rallies in aftermath of Venezuela raid and renewed Iran risks

Oil prices rallied this week as traders positioned ahead of potential additional Trump administration actions targeting oil-producing states. As of Friday, mid-day, WTI was more than $2 higher than the previous Friday’s close on January 2 — though likely not for the reason one might expect. While Venezuela’s president, Nicolás Maduro, was extracted from his palace in a late-night operation by U.S. commandos, that development is already nearly a week old. Price action was largely muted early in the week when oil trading resumed Sunday night in response to Venezuela.

Oil market focus quickly shifted to Iran during the week, where protests have broken out across the country. Oil traders are particularly attentive to President Trump’s warning that the U.S. would hit Iran “hard” if the government kills protesters during the unrest. “There is also growing concern in the market that the U.S., with Trump at the helm, could exploit the chaos to attempt to overthrow the regime, as we have seen in Venezuela,” according to A/S Global Risk Management chief analyst Arne Rasmussen. Reflecting these concerns, betting markets are assigning a 60% probability that Iran’s supreme leader, Ayatollah Khamenei, will be out of power by December, based on odds from Polymarket, the world’s largest prediction market.

Iran’s importance to the oil market lies in its scale: exports total roughly 2 MMBbl/d, with production near 3.3 MMBbl/d, according to the IEA. By comparison, Venezuela’s production is currently below 1 MMBbl/d.

Beyond Iran, Russia rejected the latest U.S.-backed Russia–Ukraine peace proposal. In recent weeks, oil markets had been moving lower on headlines suggesting progress between Kyiv and Washington on a potential deal. However, attacks between Russia and Ukraine have not slowed despite the U.S.-led peace process.

Another factor contributing to oil’s move higher this week is CTA positioning. Speculative net length in WTI has hovered near all-time lows for an extended period, reflecting a heavy buildup of short positions relative to longs. This positioning leaves the market vulnerable to short covering, particularly in response to geopolitical headlines such as those involving Iran. That short covering can add upward pressure to prices. In addition, call skew has increased at the front of the curve, indicating stronger demand for calls relative to puts.

There has been a great deal for the crude oil market to digest over the past week, but we remain bearish relative to the current forward curve. Beneath the geopolitical noise, the fundamental backdrop remains weak, driven by substantial current and projected oversupply in 2026. While a material supply disruption from Iran would be meaningful, history suggests that many geopolitical events over the past five years have produced only brief price spikes rather than sustained rallies.

Natural gas slides almost 50c in second weekly loss

Natural gas prices continued to trade lower this week, as weather models continued to show relatively mild temperatures over the next two weeks. The February Henry Hub contract lost 46c to settle at $3.16/MMbtu, the lowest level for this contract since 2021. The Summer ’26 seasonal strip fell 34c to close at $3.11/MMbtu and Winter ‘26/’27 lost 25c to settle at $3.92/MMbtu. This week’s losses were primarily driven by continued weakness in near-term gas demand forecasts, and therefore expectations of smaller storage withdrawals.

As of Friday, weather models are showing Lower-48 temperatures are expected to remain warmer than the ten-year average through most of the next two weeks. After a warm start to the year this has led to additional selling pressure across the forward curve. Commodity Weather Group is forecasting this month to be one of the warmest Januarys of the last 25 years. A significant amount of winter risk premium has now evaporated. While there is still more than two months remaining in the withdrawal season, with inventories already elevated to the five-year average there should not be much concern about supply this winter.

The primary reason why warmer temperatures in the next two weeks is resulting in selling across the curve is that the amount of gas anticipated to be in storage at the start of summer has increased considerably. As of the most recent EIA data, Lower-48 gas inventories are 31 Bcf above the five-year average. This surplus should expand further over the next few weeks. In December, our modeling showed inventories ending winter about 150 Bcf lower than the five-year average, but now with a series of smaller withdrawals likely coming, our estimate has risen to be very close to the five-year average. As the underlying supply-demand balance outside of weather still looks to be undersupplied, if temperatures came in equivalent to the ten-year average for the remainder of winter, storage withdrawals would be smaller than the five-year average withdrawal rate. This also means that if weather were to turn bullish again that inventories could once again be expected to end winter at a more significant deficit than is currently expected.