Market Report Week 3 - 13.01.2026

Oil from Venezuela is now non-sanctioned oil

The US attack on Venezuela and the abduction of Maduro happened less than two weeks ago, but a lot of things have happened since. We discussed the attack and implications in the last issue of the Weekly Market Report. To reiterate, Venezuela holds the world's largest oil reserves but accounts for less than 1% of global oil production.

Importantly, Venezuelan oil trades at a large discount to Brent and WTI. The chart below shows the price for Brent, the Merey 16 from Venezuela, and Canadian heavy sour crude. Note that the Merey 16 is priced on the US Gulf Coast. Hence, it includes transport. The price of the Venezuelan crude is closer to the local prices of Canadian oil of the same quality.  Hence, the discount is currently close to 30% vs Brent. 

Iran is the next focus point: More important for the oil market than Venezuela

Over the last week, we have seen protests against the regime in Iran in a large number of cities, with hundreds of thousands of brave Iranians on the streets despite threats from the regime that participation in demonstrations may result in the death penalty.
More than 500 people are reported killed and more than 10,000 arrested, according to the US-based Human Rights Activists News Agency. However, following the shutdown of Iran’s internet and telephone networks, news from the country is scarce, and there are fears that the death toll is significantly higher.

The prominent opposition leader Reza Pahlavi, son of the last Shah and living in exile in the US, has called for strikes in the oil sector to further pressure the regime. Oil-sector strikes were among the factors contributing to the fall of the Shah in 1979.

Iran produces approximately 3.3 million barrels per day and exports nearly 2 million barrels per day, primarily to China. In addition, there is the ever-present threat that Iran could attempt to close the Strait of Hormuz, through which around 20 percent of the world’s oil passes. Iran is far more important to the oil market than Venezuela.

Trump has on several occasions threatened military action if the regime kills demonstrators. Trump is meeting with his administration tonight to discuss measures against the regime, including a possible military strike. 

According to Trump, Iran contacted him over the weekend, and a meeting is said to be planned. However, the US is reportedly still ready to carry out a military attack even before any potential meeting. 
Trump said last night that the US will immediately impose a 25 percent tariff on countries trading with Iran.

China imported around 1.8 million barrels per day of Iranian oil in the autumn, equivalent to just under 2 percent of the global market, and is effectively the sole buyer of Iranian oil. In practice, this therefore represents an additional tariff on China if the country wishes to continue its purchases. If China stops buying Iranian oil, it would de facto amount to a comprehensive oil embargo on Iran.

China does not necessarily need to source the same volume of oil from the global market, as it has built up strategic stocks in 2025. This stockbuilding can be paused. However, there is no doubt that this de facto oil embargo on Iran increases upside risks for oil prices. We also see in the options market that more and more players are insuring themselves against a sudden, sharp rise in oil prices.

Rebalancing flows from commodity investors and short-covering also add support to Brent

At the start of the year, we see the so-called rebalancing of commodity indices such as the Bloomberg Commodity Index (BCOM) and the S&P Goldman Sachs Commodity Index (S&P GSCI). In essence, rebalancing ensures that no single commodity, such as gold, carries an excessive weight in the index due to its price performance, and that a commodity such as oil, which has fallen in price, does not carry too low a weight. The rebalancing period runs from 8 to 15 January.

In 2025, precious metals rose sharply, while oil prices fell. This means that commodity investors who track these indices automatically become sellers of commodities that have risen and buyers of commodities that have fallen in 2025. 

As oil was the big loser in 2025, this may have already triggered significant buying of Brent crude futures. The impact may be exaggerated, as there has been a consensus to short oil in anticipation of a 2026 supply glut. 

That said, rebalancing and short-covering are temporary effects. Investors are familiar with the mechanics, and many may already have rebalanced.