Oil Rebounds as Geopolitical Risk Returns to the Price

Oil prices have staged a modest but notable recovery, with WTI crude futures climbing back above 56 dollars per barrel on Thursday. The move extends a rebound from a near five-year low and marks a clear shift in market tone. After weeks dominated by oversupply concerns and weak demand narratives, geopolitics has re-entered the equation and is once again influencing price action.

The immediate catalyst has been a sharp escalation in US enforcement actions tied to sanctioned oil flows. Washington has ordered a full shutdown of maritime traffic involving blacklisted tankers operating to and from Venezuela. This follows last week’s seizure of a sanctioned vessel off the Venezuelan coast, a move that signaled a tougher stance on enforcement rather than rhetoric. While Venezuelan exports have already been constrained, the decision raises uncertainty around shipping routes, insurance, and the availability of vessels willing to move sanctioned crude.

At the same time, the United States is moving toward tighter measures on Russia’s energy sector. The intent is to increase leverage in ongoing efforts to push peace negotiations over Ukraine forward. Markets are reacting less to the political framing and more to the potential consequences. Any tightening of sanctions that disrupts Russian exports, even temporarily, has implications for global supply, particularly in a market that had grown comfortable with the idea of abundant barrels.

These developments have reintroduced a geopolitical risk premium that had largely faded in recent weeks. While the broader supply picture remains relatively loose, traders are increasingly cautious about assuming uninterrupted flows from heavily sanctioned producers. The shift is not about immediate shortages, but about higher uncertainty around future availability.

Fundamentals have also offered some support. The latest EIA data showed US crude inventories fell by 1.27 million barrels last week, marking a second consecutive draw and coming in slightly above expectations. Stocks at the Cushing, Oklahoma delivery hub posted their largest decline in nearly two months, helping to underpin futures prices. That said, the picture was not uniformly bullish. Gasoline and distillate inventories increased, suggesting that demand at the refined product level remains uneven.

The rebound in oil does not signal a return to the tight conditions that defined earlier cycles. Structural concerns around supply growth and demand moderation have not disappeared. However, the market has been reminded that geopolitical risk still matters, particularly when it intersects with enforcement actions rather than diplomatic headlines.

In the near term, oil prices are likely to remain sensitive to further developments around sanctions and shipping restrictions. While oversupply remains a medium-term concern, the balance of risks has become more two-sided. The recent price action reflects a market that is no longer pricing oil solely on surplus, but on the growing realization that supply flows can still be disrupted when policy turns from words into action.