Brent crude settled at $69.32 a barrel on Friday, capping a January rally of roughly 14%. That makes it the strongest monthly performance since July 2023. WTI finished at $65.21, posting a 16.2% gain that marked its largest monthly advance in nearly four years.
Both benchmarks slipped on Friday's session, with Brent down 0.39% and WTI off 0.32%. But the pullback barely dented a month that saw oil prices surge on renewed military threats between Washington and Tehran.
Strait of Hormuz back in focus
Iran raised the stakes Friday by announcing a live-fire naval drill in the Strait of Hormuz scheduled for Sunday and Monday. A notice to mariners warned of "naval shooting" in coordinates that overlap the Traffic Separation Scheme, the two-lane system tankers use to transit the strait.
US Central Command responded within hours, warning Tehran that any unsafe behavior near American forces or commercial vessels would increase the risk of escalation. The USS Abraham Lincoln carrier strike group remains deployed in the region.
About 13 million barrels per day of crude oil pass through the Hormuz chokepoint, accounting for roughly 31% of global seaborne crude flows. Shipping companies including Maersk and Hapag-Lloyd have been rerouting vessels around the Cape of Good Hope, pushing VLCC tanker rates near $130,000 per day.
A month of compounding supply fears
The Iran standoff was not the only factor behind January's rally. A cascade of supply disruptions stacked up through the month:
- A severe winter storm knocked out roughly 2 million barrels per day of US production in mid-January, hammering the Permian Basin hardest
- A production outage at Kazakhstan's Tengiz field cut about 300,000 bpd from OPEC+ supply
- Washington tightened restrictions on purchases of Russian crude, squeezing another source of barrels
- Venezuela's political turmoil after the overthrow of Nicolás Maduro added uncertainty over its 900,000 bpd of exports
The US dollar also fell to its lowest level in nearly four years, making dollar-priced crude more attractive to overseas buyers.
Risk premium estimated at $7 to $10
Citigroup estimated that the geopolitical risk premium baked into Brent was running between $7 and $10 a barrel. Traders have piled into options markets to hedge against a further spike. On Thursday, Brent briefly topped $70 for the first time since September.
Analysts caution that a direct military confrontation could push prices $10 to $20 higher if Iranian exports or Hormuz transit were disrupted. BloombergNEF modeled an extreme scenario in which a complete removal of Iranian barrels could send Brent toward $91 by the fourth quarter.
Still, most desks put the probability of a full strait closure low, citing the US naval presence and Iran's own economic dependence on oil revenue that flows through the same waterway.
What to watch next
The OPEC+ Joint Ministerial Monitoring Committee meets Saturday to review the production pause that has kept 1.65 million bpd off the market through Q1. With prices rallying, some members may push for a timeline to begin unwinding cuts. That would clash with a bearish longer-term outlook: the EIA forecasts Brent will average just $56 a barrel for 2026.
China's January manufacturing PMI, due Saturday evening, will also test whether the demand side can support prices that have run up on supply fear alone. Track the latest movements on our live market data page.