Geopolitical Risks and Supply-Demand Changes Boost Crude Oil Prices Significantly During the Chinese New Year

February 24 news

During the Spring Festival, the international crude oil market showed significant fluctuations, with prices generally rising to a six-month high. This was mainly influenced by both geopolitical tensions and fundamental changes. The escalation of U.S.-Iran relations became the core driving factor, while shifts in the global oil supply and demand landscape also added uncertainty to the market.

Geopolitical premium dominates oil price trends

During the Spring Festival period (February 13–23), U.S. WTI crude oil prices rose from $62.89 per barrel to $66.31 per barrel, representing a price increase of as much as 5.5%. Brent crude oil prices climbed from $67.75 per barrel to $71.11 per barrel, with a price increase of 5.0%. Both U.S. and Brent crude oils reached their highest levels in six months. The core driver behind this price surge is the geopolitical risk premium, fueled by ongoing tensions between the United States and Iran. Military activities by both countries in the Middle East’s oil-producing regions have significantly intensified, prompting market concerns that a breakdown in negotiations could lead to supply disruptions. News that the U.S. Department of Defense is preparing to deploy a second aircraft carrier strike group to the Middle East has further heightened market volatility. As a major global oil exporter, Iran has maintained its production at over 3.3 million barrels per day for an extended period, with export volumes exceeding 1.6 million barrels per day. Should a substantial conflict erupt, the safety of navigation through the Strait of Hormuz would face severe challenges.

It is worth noting that the progress of U.S.-Iran negotiations directly affects oil price trends. If the negotiations achieve a breakthrough, oil prices could quickly reverse the geopolitical premium they have recently accumulated. The market generally believes that, until the U.S. and Iran reach a short-term framework, the tail risk in the Strait of Hormuz will persist.

Changes in the supply and demand fundamentals provide support for oil prices.

In addition to geopolitical factors, changes in the fundamental outlook of the crude oil market also deserve close attention. According to the latest data from the U.S. Energy Information Administration (EIA), as of the week ending February 13, U.S. crude oil inventories fell sharply by 9 million barrels to 419.8 million barrels—far exceeding market expectations. Inventories of gasoline and distillates also saw significant declines, reflecting a broad-based increase in fuel demand—from refineries all the way to gas stations.

From a seasonal perspective, the period around the Chinese New Year coincides with the critical phase of winter storms in Europe and the United States, during which heating demand is in the transition between peak and off-peak seasons. As the impact of the post-holiday cold wave subsides, downstream refineries in China gradually begin their spring maintenance, making the trend of U.S. crude oil inventory changes worth watching. Historical data shows that the market trend on the first trading day after the holiday usually aligns with the performance of the foreign markets, and the trend for the week often continues in the same direction as the first day.

Macroeconomic factors influence demand expectations

At the macro level, adjustments to U.S. tariff policies are weighing on the oil market. The Trump administration announced that it would raise the import tariff rate on global goods from 10% to 15%. Meanwhile, core U.S. inflation has returned to 3%, and GDP growth is slowing—factors all of which are unfavorable to expectations for crude oil demand.

On the OPEC side, eight member countries will hold a meeting on March 1. Currently, there is a growing inclination to resume the planned increase in production starting from April, in order to meet the peak demand for oil during the summer months. Meanwhile, Iran, Venezuela, and Russia—collectively—have seen their combined oil export volumes decline by more than 1 million barrels per day month-on-month, causing the anticipated global inventory accumulation for the first quarter to fall short of expectations so far, thereby providing support for the central price level of oil.

Future Market Outlook

Looking ahead to the post-holiday market, crude oil analysts believe that the trend in crude oil prices still faces significant uncertainty. The interplay between geopolitical risks and changes in fundamental factors will continue to dominate market direction. If the U.S.-Iran situation does not escalate into a substantial disruption of supply, the current geopolitical premium may lack sustainability, and the market could face the risk of reversing course. Investors need to closely monitor the outcomes of the OPEC meeting, U.S. inventory data, and the latest developments in geopolitics, and take appropriate measures to manage risks.