Traders Hedge Oil Prices Due to Iran Tensions, Increased Venezuelan Supply

• Iranian tensions and severe U.S. winter weather (which knocked off up to 2 million bpd of crude output) drove risk premiums and hedging activity in oil markets
• Venezuelan crude's return created competition for Canadian oil at the U.S. Gulf Coast, with WCS futures hitting a record 188,000 contracts and a single-day record on January 6 when a deal allowed up to $2 billion in Venezuelan imports
• The hedging surge reflects producers seeking to lock in prices and traders capitalizing on volatility, with U.S. crude futures hovering around six-month highs during the period

Summary: Oil Price Hedging Surges Amid Iran Tensions and Venezuelan Supply Shifts

Key Market Activity:

Investors set record hedging volumes in January 2026 as oil market volatility intensified. WTI Midland at Houston contracts on the Intercontinental Exchange (ICE) reached 1.9 million contracts for the month, with a single-day record of 257,569 contracts on January 30, when U.S. crude futures traded near six-month highs at approximately $65 per barrel—up 14% from early January.

Primary Drivers:

• Iranian Geopolitical Tensions: Escalating concerns between Washington and Tehran drove risk premiums higher and prompted aggressive hedging activity among producers and traders
• Severe U.S. Winter Weather: Extreme cold knocked out an estimated 2 million barrels per day (bpd) of crude production at peak disruption, significantly impacting refinery operations
• Venezuelan Supply Returns: A deal allowing up to $2 billion worth of Venezuelan crude imports to the U.S. sparked concerns about market share displacement

Canadian Oil Impact:

ICE Houston Western Canadian Select (WCS) futures also hit records with 188,000 contracts traded monthly and 19,965 lots on January 6—the day the U.S.-Venezuela agreement was announced. Market participants worry Venezuelan barrels will compete with Canadian crude on the U.S. Gulf Coast and in export markets like China.

Market Implications:

The record hedging activity reflects heightened uncertainty around supply dynamics and geopolitical risk. Producers are locking in prices to protect against volatility, while traders seek profit opportunities. The convergence of Middle East tensions, weather disruptions, and shifting Latin American supply patterns is creating significant price risk management needs across the oil sector.