Oil prices have surged to their highest levels in three months, with Brent crude futures reaching over $80 per barrel and West Texas Intermediate (WTI) futures climbing to around $76 per barrel. This significant increase, amounting to nearly a 3% rally, is attributed to a combination of factors including stringent US sanctions on Russian oil, OPEC+ production cuts, and heightened demand due to cold weather in the US and Europe.

The Biden administration has imposed the broadest package of sanctions yet on Russian oil, targeting producers, tankers, intermediaries, traders, and ports. These sanctions aim to disrupt every stage of Russia's oil production and distribution chains, causing severe disruptions to Russian oil exports to major buyers like India and China. The sanctions are expected to reduce Russian oil export volumes and increase their costs, as noted by UBS analyst Giovanni Staunovo. The timing of these sanctions, just days before Donald Trump's inauguration, suggests they may be used as leverage in negotiations for a Ukraine peace treaty.

In addition to geopolitical tensions, extreme cold in the US and Europe has boosted demand for heating oil. The US weather bureau anticipates below-average temperatures in central and eastern parts of the country, while many regions in Europe are experiencing a colder-than-usual start to the year. This has led to an uptick in heating oil demand, with US ultra-low sulfur diesel futures rising 4.8% to their highest since July.

OPEC+ has also contributed to the supply squeeze by maintaining production cuts. Saudi Arabia and Iraq have adhered to the cartel's strategy to limit global oil availability, while OPEC production dropped by 50,000 barrels per day in December due to maintenance in the UAE and declining Iranian output. These reductions align with OPEC+'s commitment to cut production, ensuring supply remains constrained.

Despite these bullish factors, market fundamentals remain weak. Consensus suggests that China's oil demand may plateau before the end of the decade, a significant concern given that the country accounted for 50% of global oil demand growth between 2000 and 2023. Non-OPEC supply is expected to rise in 2025, with the International Energy Agency forecasting an increase of about 1.5 million barrels per day from producers like the US, Canada, Guyana, Brazil, and Argentina. A stronger US dollar also adds bearish pressure on oil prices, making oil purchases more expensive for non-US importers.

Traders remain cautiously bullish, with supply constraints and seasonal demand providing critical support for prices. However, mixed inventory data and global economic uncertainties could temper upside momentum. The market's direction will be closely watched, with a major pivot at $74.00 determining the weekly trend.