Vincent Wu
Research Associate, Flux
Fading the Geopolitical Rally
Despite continued geopolitical uncertainty, bearish pressures are expected to prevail at elevated levels
View: $62.00-64.00 (Bearish)
Last week, Brent crude futures saw tumultuous price action on the back of escalating Iranian protests and the raised prospect of US military intervention. On 14 Jan, Mar’26 Brent reached intraday highs of $66.82/bbl, a 3-month high, with the rally exacerbated by short covering flows. However, prices retreated later in the week towards $64/bbl as President Trump pulled back from strike threats following assurances that the ‘killing had stopped’. This week, we expect Brent to consolidate around $62-64/bbl as the market pauses to reassess fundamentals.
Key drivers to monitor this week include:
- Lingering Geopolitical Risk
- Physical Market Influencing Futures Sentiment
- Positioning and Technicals in Brent
Lingering Geopolitical Risk
Brent saw rapid gains last week as the geopolitical risk premium increased following potential military action by the US in response to the protests in Iran. However, market anxiety was quickly calmed as President Trump temporarily pulled back from threats to strike Iran, saying that he was assured the killing of protesters was halted and no executions were being planned.
Nonetheless, some geopolitical risk premium remains, as Trump has not ruled out military action, and markets remain mindful of his previous feint toward Iran ahead of last year’s 12-day war. Traders will be watching closely for further developments, with prices likely to remain sensitive to headlines.
Physical Market Influencing Futures Sentiment
The North Sea physical crude market saw strong bullish sentiment last week amid ongoing supply constraints around CPC crude. Loadings were already reduced following a drone attack in November that suspended a single-point mooring, with tensions escalating further last week after drones struck oil tankers in the Black Sea, including one chartered by Chevron.
As a result, offer prices for CPC softened sharply, prompting physical buyers to pivot toward Dated Brent cargoes. The physical window was consequently well bid, with the Dated differential rising above $2/bbl for the first time since 2022. This highlights how localised supply disruptions can have an outsized impact on a global benchmark.
While the 2026 Brent forward curve is lifted out of contango, broader bearish pressures remain amid a prevailing surplus narrative, with shorts likely to fade the rally at higher levels. North Sea sentiment will be key to watch in the week ahead, as any slowdown in physical buying could temper bullish momentum in futures.
Positioning and Technicals in Brent
As the Brent rally loses momentum, technical indicators point to further downside potential. As of 19 January, Brent is struggling to break above its 100-day moving average. On the downside, prices may target the 20-day moving average around $62.33/bbl, which also marks the Bollinger band mid-point, with a move toward this level likely to complete the current mean-reversion phase. In addition, the MACD histogram has been turning less positive since 15 January, indicates waning short-term bullish momentum.
Finally, Flux’s CTA Positioning Index shows CTA length in Brent futures is elevated, limiting upside potential and increasing vulnerability to downside moves if positioning is unwound. Backtests indicate that when the index rises above 45, prices have tended to mean-revert lower in the subsequent week around 62% of the time.
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