Energy products across the board, from crude oil to natural gas, continue to gain momentum due to multiple factors, including short-term disruption fears and the long-term impact of expanded sanctions on Russia. The "weather trade" has gained traction after forecasts predicted another potential Arctic blast to hit a large portion of the United States between Jan. 19 and Jan. 25. This cold wave is expected to affect three key oil production regions: the Bakken (parts of North Dakota and Montana), the Niobrara region (comprising Colorado, Nebraska, parts of Wyoming), and the northern sections of the Permian Basin in Texas.

These regions not only have significant oil production but also play a vital role in natural gas output. Any dramatic production drop in the Bakken could have a significant impact on natural gas production and pipeline logistics, exacerbating concerns about already strained natural gas supplies. On the global stage, European natural gas storage levels are approximately 67%, well below last year’s levels and the five-year average. However, the weather trade can be volatile; as forecasts adjust, especially with more optimistic weather outlooks, prices tend to reverse aggressively.

The sanctions on Russian and Iranian crude, along with the "shadow" trade of these supplies, are also boosting confidence among bulls that prices in the petroleum complex could advance further. Key questions remain: Will China and India adjust their energy policies, or will they double down on building out the shadow fleet? Another critical consideration for energy traders is whether the Trump administration will maintain these new sanctions or roll them back due to concerns over higher energy prices, especially in a market already grappling with inflation that appears to be reaccelerating or at least maintaining its stickiness.

For traders involved in the petroleum market—including crude oil, gasoline, and diesel—fundamental data from recent weeks does not suggest increasing consumption trends. This implies that price advances are predominantly driven by supply-side issues, which are often short-lived. Overnight, China’s import/export data surpassed market expectations, but the country’s crude oil imports fell by 1.9% in 2024—the first annual decline in over 20 years outside of COVID-19 impacts—underscoring the demand-side challenges the country has faced over the past year.

Energy traders must remain vigilant. Without any optimism on the demand side, prices may face a ceiling, and advances are likely to be temporary.

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