Oil Prices Ease as Geopolitical Tensions Subside
Energy stocks show mixed performance as the market weighs easing U.S.-Iran tensions against tight supply and uncertain demand forecasts for 2026.
Oil prices have retreated from three-month highs as the market dials back the geopolitical risk premium following signs of de-escalation between the United States and Iran, which has eased fears of a wider conflict in the Middle East.
Brent crude, the international benchmark, fell to the mid-$64 per barrel range after briefly touching over $66 last week. West Texas Intermediate (WTI), the U.S. marker, hovered around the $60 mark. The decline followed reports that Iran took steps to avert potential U.S. military action, a development that cooled a market previously on edge about the security of global supply routes.
This unwinding of geopolitical tension initially weighed on the energy sector. A reduction in the perceived threat to oil transit in the Strait of Hormuz typically removes a risk premium that can inflate crude prices. However, the sector’s performance remains mixed as investors digest a complex set of market signals.
While the initial reaction was bearish, some energy giants have shown resilience. Shares of Exxon Mobil (XOM), for instance, recently posted a notable gain, rising nearly 2.9% to trade around $130. This suggests that strong company fundamentals and other market-balancing forces may be offsetting the impact of subsiding geopolitical fears for some industry players.
The market is currently caught in a tug-of-war between these geopolitical developments and underlying supply-and-demand fundamentals. Providing a floor for prices is the ongoing strategy of OPEC and its allies. The producer group, known as OPEC+, is maintaining its production cuts for February and March 2026, withholding supply from the market to prevent a surplus. According to analysts at UBS, the group is expected to begin a gradual unwinding of these cuts starting in the second quarter.
Conflicting demand forecasts are adding another layer of uncertainty. OPEC has maintained a relatively bullish outlook, projecting global oil demand growth to continue robustly through 2026. In contrast, the U.S. Energy Information Administration (EIA) has a more sober view, predicting a potential supply surplus in the coming year as global production outpaces demand.
For now, the energy market remains highly sensitive to headlines from the Middle East. While the immediate threat appears to have diminished, as initially reported by Bloomberg, traders will continue to watch for any signs of renewed friction. At the same time, the focus will remain on the core market balance—the discipline of OPEC+ producers versus the strength of the global economy and its thirst for oil.