WTI crude oil futures hovered near $58 per barrel on Tuesday, stabilizing after a more than 2% surge in the previous session as markets reassessed geopolitical risks against a persistently bearish supply-demand outlook. While renewed tensions across Eastern Europe, Latin America, and the Middle East have revived a modest risk premium, oil prices remain under pressure and are on track for their steepest annual decline since 2020.

Geopolitical Tensions Reignite Risk Premium

The latest price stabilization follows a fresh wave of geopolitical uncertainty. Comments from Russia’s foreign minister suggesting that Moscow’s negotiating stance on Ukraine would harden after alleged strikes near President Vladimir Putin’s residence unsettled markets that had briefly leaned toward de-escalation. Those remarks came just days after U.S. and Ukrainian officials indicated “a lot of progress” toward a potential agreement, though they acknowledged that several politically sensitive issues remain unresolved.

Beyond Eastern Europe, developments in Venezuela have added another layer of uncertainty. Reports indicate that state-linked operators have begun shutting wells in a major oil-producing region as the U.S. tightens its blockade. President Donald Trump confirmed that the U.S. struck a Venezuelan loading facility earlier this week, escalating pressure on Caracas. While Venezuelan exports account for less than 1% of global supply, traders remain sensitive to any disruptions that could tighten regional flows or signal broader enforcement actions.

Middle East Risks and Market Psychology

Oil markets are also responding to renewed tensions in the Middle East. President Trump warned of further U.S. strikes should Iran resume nuclear development, reintroducing concerns about instability in a region critical to global energy supply. Although no immediate disruptions have materialized, the rhetoric alone has been sufficient to slow recent selling and encourage short-term positioning by traders wary of headline risk.

From a psychological standpoint, the combination of multiple geopolitical flashpoints has made investors reluctant to press aggressive short positions, even as the fundamental backdrop remains weak. This caution has helped crude prices consolidate rather than extend their recent declines.

Supply Glut and Demand Headwinds Dominate Outlook

Despite the geopolitical noise, the broader oil narrative remains dominated by supply. Global production continues to exceed demand, driven by resilient U.S. output, recovering non-OPEC supply, and OPEC+ gradually unwinding earlier cuts. At the same time, demand growth expectations have softened, particularly across China and parts of Europe, where economic momentum remains uneven.

These dynamics explain why crude prices are down nearly 20% this year, even after recent rebounds. Investors increasingly view geopolitical-driven rallies as opportunities to reassess exposure rather than the start of a sustained uptrend, especially with inventories remaining ample and refinery margins under pressure.

What Markets Are Watching Next

Looking ahead, traders will closely monitor diplomatic signals around Ukraine, enforcement actions related to Venezuela, and any tangible developments in the Middle East. At the same time, macroeconomic data, including U.S. growth indicators and global demand forecasts, will shape expectations for consumption in 2026. Unless supply conditions tighten materially, oil’s upside may remain limited, with volatility driven more by headlines than by structural improvement in fundamentals.