Oil Prices Jump on Geopolitical Fears While a Massive Glut Sits at Sea

Oil prices have climbed in recent weeks, even as a global surplus has left hundreds of millions of barrels floating offshore.

On Wednesday, oil prices ended over 4% higher as traders priced in the risk of supply disruptions amid tensions between the US and Iran and uncertainty over the war in Ukraine, after talks in Geneva ended without a breakthrough.

Oil futures edged up early Thursday, with US West Texas Intermediate crude oil futures trading around $65.30 per barrel at 1:04 a.m., while international benchmark Brent crude was around $70.50 per barrel.

Prices of both grades are around 15% higher this year after three straight years of decline, reflecting a return of the geopolitical risk premium despite a global oil supply surplus.

The key reason for the disconnect is that much of the surplus has materialized as sanctioned crude “stuck at sea,” while inventories in key pricing hubs have remained stable, analysts at Goldman Sachs wrote in a Wednesday note.

Supply at sea, scarcity on land

Goldman estimates the oil market ran a surplus of about 1.5 million barrels per day in 2025. Normally, that kind of oversupply would weigh heavily on prices.

Instead, many tankers carrying sanctioned crude from Russia, Iran, and Venezuela are sitting at sea, using “dark fleet” and shadow shipping tactics to evade sanctions and keep oil moving.

While that allows sanctioned oil to keep flowing, it also leaves more barrels lingering at sea, far from storage centers such as the US Gulf Coast and Northwest Europe — regions that anchor global crude pricing.

Sanctioned crude inventories on water have risen by around 130 million barrels from a year ago and now stand at roughly 375 million barrels, Goldman estimates. That accounts for about one-third of the increase in global crude inventories.

“Inventory builds matter less for prices when occurring on water,” Goldman wrote, because traders discount barrels that may never reach key pricing hubs.

The buildup stemmed from weaker demand for sanctioned crude late last year, as India and China bought less Russian oil.

That softer demand reflected shifting geopolitical incentives, including changes in US trade policy, as well as expectations of steeper discounts or possible sanctions relief, the bank added.

But the dynamic may not last.

“We assume that the pace of stockpiling moderates at sea but picks up on land,” Goldman wrote.

The bank expects the share of oil inventory tied up offshore to fall from about 47% in 2025 to roughly 21% in 2026.

Holding its global surplus estimate constant, Goldman’s framework suggests that every 1 million barrels per day of sanctioned crude that piles up at sea for 12 months can lift Brent by as much as $8 per barrel.

Meanwhile, every 100 million barrel reduction in oil stored offshore — as cargoes move into land-based inventories — could lower prices by $3 to $4.

Goldman expects Brent to average $56 per barrel and WTI $52 in 2026, the bank’s analysts wrote in a separate note on January 11.