Oil Markets Rally on Fresh Demand Signals and Index Rebalancing Inflows

February WTI crude futures surged +1.77% to hit higher ground today, with February RBOB gasoline climbing +2.57%, as bullish crosscurrents converged in the energy complex. The rally stems from two primary catalysts: unexpectedly strong US economic data signaling robust energy demand, and massive capital inflows tied to the annual commodity index rebalancing cycle.

What’s Driving the Crude Recovery

The energy demand picture brightened considerably with today’s labor market surprises. December jobless claims fell 8.3% year-over-year to 35,553—a 17-month floor—while initial weekly unemployment filings ticked up just 8,000 to 208,000, beating the 212,000 consensus. Productivity gains also impressed: Q3 nonfarm productivity jumped 4.9%, nearly matching the 5.0% forecast and marking the largest two-year jump.

This positive macro backdrop translates directly into crude pricing expectations. Citigroup estimates that the two largest commodity indexes—BCOM and S&P GSCI—will attract approximately $2.2 billion in futures buying over the coming week as part of their annual rebalancing mechanisms. Such mechanical buying provides a structural floor beneath crude prices.

Headwinds Weighing on Markets

However, crude faces mounting pressure from multiple angles. Wednesday’s sanctions rollback on Venezuelan crude—permitting selective transport and sales to global markets—rattled sentiment after reports suggested the US may acquire up to 50 million barrels of Venezuelan crude. Venezuela ranks as the twelfth-largest OPEC producer, and loosened restrictions could expand global supplies.

Price forecasts from major banks underscore supply-demand imbalances ahead. Morgan Stanley revised Q1 crude forecasts down to $57.50/bbl from $60/bbl, with Q2 estimates cut to $55/bbl, citing expectations of an expanding global oil surplus peaking mid-year. The dollar index’s rally to four-week highs also pressured crude, making dollar-denominated contracts less attractive to foreign buyers.

Supply-Side Complexities

OPEC+ signaled pause mode, committing Sunday to halt production increases throughout Q1 2026. The cartel raised output by 137,000 bpd in December but will hold steady going forward, having already restored most of the 2.2 million bpd cuts initiated in early 2024—with 1.2 million bpd still awaiting restoration. December OPEC crude production climbed 40,000 bpd to 29.03 million bpd.

Russia’s export capacity remains under stress. Ukraine’s drone and missile campaign has targeted at least 28 Russian refineries over four months, and intensified attacks on Russian tanker traffic in the Baltic Sea—with at least six vessels hit since late November—constrain crude shipments. Fresh US and EU sanctions on Russian oil infrastructure further tighten export channels.

These supply disruptions partially offset the bearish impact of easing Venezuelan sanctions, creating mixed signals for crude direction.

The Demand Equation: China’s Bright Spot

China’s crude imports offer a counter-narrative. December imports are projected to climb 10% month-over-month to a record 12.2 million bpd as Beijing rebuilds crude inventories, providing demand support at a critical moment. Conversely, Saudi Arabia’s third consecutive monthly price cut for Arab Light crude to February customers hints at producer anxiety over demand.

Inventory Snapshots and Production Trends

Latest EIA data from January 2 reveal crude inventories running 4.1% below the five-year seasonal average—supportive for prices—while gasoline inventories sit 1.6% above seasonal norms and distillates trail by 3.1%. US crude production edged down 0.1% to 13.811 million bpd, just shy of November’s record 13.862 million bpd. Active US oil rigs ticked up three units to 412 in early January after hitting a 4.25-year low of 406 rigs in December, signaling modest producer activity recovery.

Storage on stationary tankers also tightened, with Vortexa reporting a 3.4% weekly decline to 119.35 million bpd, another supportive signal for crude valuations in the near term.