The Oil Rally's Peculiar Turn: A Closer Look at Gas Prices

The oil market has witnessed a remarkable rally in recent weeks, with crude oil benchmarks climbing to levels not seen since October 2024. This surge in prices has been driven by a combination of factors, including supply disruptions, increased demand, and geopolitical tensions. However, as oil prices soar, gas prices have remained relatively stable, raising questions about the dynamics at play in these interconnected markets.



Supply loss from Russia has been a significant contributor to the oil rally. Sanctions on Russian crude oil exports and tankers carrying oil from the country have led to a significant reduction in Russian oil exports, causing the market to tighten. Buyers have turned to Middle Eastern markets, pushing the Brent-Dubai spread into negative territory and leading to additional demand and market tightening (ING Group, 2025). This supply loss has put upward pressure on oil prices, with crude oil benchmarks trading near levels not seen since October 2024 (Invezz, 2025).



Increased demand, particularly from China, has also supported the oil rally. Following the country's stimulus measures and the easing of COVID-19 restrictions, demand for crude oil has surged, leading to a draw in crude inventories and further boosting oil prices (Trade Nation, 2025). Geopolitical risks, such as the conflict in the Middle East and the potential tightening of sanctions on Iran, have also contributed to the oil rally, putting upward pressure on prices (ECB Economic Bulletin, 2024).

However, gas prices have remained relatively stable despite reacting to recent geopolitical tensions. This decoupling of oil and gas prices can be attributed to the less global integration of gas markets compared to oil markets, as well as the different dynamics of supply and demand for these two commodities (ECB Economic Bulletin, 2024). While gas prices have reacted to geopolitical tensions, they have remained well below 2022 levels, indicating that the factors driving the oil rally have had a more limited impact on the gas market.

Speculative activities in the oil and gas markets have been a topic of debate for many years, with some observers suggesting that they play a significant role in driving price dynamics. However, academic studies generally do not find strong evidence supporting this claim. Market metrics, such as the Working T index, can be used to measure the extent of speculation in these markets. In the oil market, the speculation index has remained relatively stable, with a limited correlation between the index and oil prices (Chart B, panel a). In the gas market, speculation indices have also remained broadly stable, with a limited correlation between the index and gas prices (Chart B, panel b).

In conclusion, the recent oil rally has been driven by supply disruptions, increased demand, geopolitical tensions, and OPEC+ cuts. These factors have influenced oil prices more significantly than gas prices, with gas prices remaining relatively stable despite reacting to geopolitical tensions. Speculative activities may play a limited role in the oil and gas markets above and beyond hedging needs, but they do not appear to be the primary driver of price dynamics. Market metrics generally point to speculation playing a limited role, and the correlation between speculation indices and prices is not strong. As the oil market continues to evolve, investors should keep a close eye on both oil and gas prices to make informed decisions about their portfolios.