Crude Oil Dynamics '26: Risk premiums, trade realignments, demand explained

Analysts at Mirae Asset Sharekhan expects WTI Crude oil futures to trade within a broader $59-$66 per barrel range in the coming weeks.

Oil prices rebounded after the US military shot down an Iranian drone near its vessel in the Strait of Hormuz, raising fears of a potential conflict. The incident followed a 4 per cent decline the previous day, triggered by President Trump's comments that nuclear-deal talks with Iran could begin soon after Tehran signaled willingness to engage.

Turkey also announced plans to host high-level US-Iran discussions on Friday, adding diplomatic uncertainty. Any direct attack on Iran—OPEC's fourth-largest producer—could disrupt its crude exports and threaten closure of the Strait of Hormuz, a critical chokepoint through which about 20 per cent of global oil supply flows. Such a disruption would carry significant implications for worldwide energy markets.

 

US-India trade deal

The US President announced that Washington and New Delhi have reached a new trade agreement under which US tariffs on Indian exports will be cut sharply from 50 per cent to 18 per cent. This development follows India's commitment to scale back purchases of Russian crude, a shift that effectively removed a 25 per cent punitive tariff and aligned duties with global benchmarks.

Despite the announcement, the Indian government has not formally confirmed the deal, and state-owned refiners have already booked Russian crude cargoes for February and March.

Over the past two years, India has sourced roughly 35–40 per cent of its oil—about 1.8 to 2 million barrels per day—from Russia, benefitting from discounts of $5–$10 per barrel at a time when the country imports nearly 85 per cent of its total crude requirements.

Recent US pressure to curb Russian imports has contributed to a decline in Russian deliveries, which fell to around 1.2 million barrels per day in December, the lowest level in more than three years. However, it remains premature to conclude whether India will fully pivot away from discounted Russian crude in the near term.

Venezuela exports

Venezuela holds the world's largest proven oil reserves, but extracting them requires massive capital investment and long-term infrastructure upgrades. Currently, the country produces only about 800,000 barrels per day, far below its potential. Raising output to even 2 million barrels per day would take several years due to underinvestment, aging facilities, and operational hurdles.

Until Venezuela can significantly scale up production, global markets will continue relying heavily on other major suppliers such as Russia and Iran to meet demand and offset supply constraints.

Global crude oil Demand Supply expectation

Global oil demand projections for 2026 differ across major agencies. OPEC forecasts the highest demand at 106.5 mb/d, while the IEA and EIA estimate 105 mb/d and 104.8 mb/d, respectively. OPEC expects strong liquids demand growth of 1.4 mb/d in 2026, driven largely by non-OECD economies, which are set to contribute around 1.2 mb/d. The EIA offers a more moderate outlook, projecting demand growth of 1.1 mb/d in 2026 and 1.3 mb/d in 2027.

The IEA anticipates the smallest increase at 0.8 mb/d but expects India and China to remain the main sources of incremental demand. Although 2026 estimates diverge by roughly 0.5 mb/d, projections for 2027 show closer alignment, with both OPEC and the EIA expecting around 1.3 mb/d of annual growth.

Global oil demand estimates for 2026 vary among the agencies, with OPEC projecting the highest at 106.5 mb/d, followed closely by IEA at 105 mb/d and EIA at 104.8 mb/d.

Crude Oil Outlook

Short-term concerns have lifted crude prices by 11 per cent in January, with potential for another 4–5 per cent upside. However, the medium- to long-term outlook remains restrained.

China's week-long Lunar New Year break is expected to soften industrial demand, while OPEC+ maintaining its output freeze until Q1-2026 has kept market conditions relatively tight. We expect WTI to trade within a broader $59–$66/b range in the coming weeks, and a dip-buying approach remains preferable in the near term.

(Disclaimer: This article is by Mohammed Imran, research analyst, Mirae Asset Sharekhan. Views expressed are her own.)