Oil prices held steady on Wednesday as markets prepared to close out a bruising year that will see benchmark crude fall more than 15%, capping the energy sector’s most challenging period since the depths of the COVID-19 pandemic.
Brent crude futures, the global benchmark, are tracking toward a nearly 18% annual decline—the steepest yearly percentage drop since 2020—and are poised to notch a third straight year of losses, an unprecedented losing streak in the contract’s history. The March contract settled at $61.28 a barrel as of early European trading, down a modest 5 cents on the day but sharply lower from where it began the year.
The persistent weakness in oil markets reflects a fundamental imbalance that has dominated trading throughout 2025: supply growth has consistently outpaced demand, even as multiple geopolitical flashpoints threatened to disrupt global energy flows.
The year began with promise for oil bulls. In his final days in office, President Joe Biden imposed stringent new sanctions on Russian energy exports, disrupting critical supply routes to major consumers China and India and briefly sending prices higher. That optimism, however, proved short-lived.
Despite an escalating war in Ukraine—where Ukrainian drone strikes damaged Russian energy infrastructure and disrupted Kazakhstan’s oil exports—and a 12-day military confrontation between Iran and Israel in June that threatened the strategically vital Strait of Hormuz, oil prices failed to sustain any meaningful rallies.
Additional tensions emerged from unexpected quarters. Saudi Arabia and the United Arab Emirates, typically aligned as leading members of OPEC, found themselves at odds over the conflict in Yemen. President Donald Trump, upon returning to office, ordered a blockade on Venezuelan oil exports and threatened military action against Iran, rhetoric that would typically send markets scrambling.
Yet each geopolitical flare-up proved insufficient to overcome the weight of mounting supply.
The Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, contributed significantly to the price decline by accelerating production increases throughout 2025. The cartel released approximately 2.9 million barrels per day into the market beginning in April, a decision that now appears to have badly misjudged demand conditions.
Recognizing their error, OPEC+ members have announced a pause on further output increases for the first quarter of 2026, with the group’s next critical meeting scheduled for January 4. Market participants will be watching closely for signals about potential production cuts.
“If the price really has a substantial fall, I would imagine you will see some cuts,” explained Martijn Rats, Morgan Stanley’s global oil strategist. “But it probably does need to fall quite a bit further from here on—maybe in the low $50s.”
Analysts across Wall Street and beyond are projecting continued weakness into next year. BNP Paribas commodities analyst Jason Ying anticipates Brent could slide to $55 per barrel in the first quarter of 2026 before recovering modestly to $60 for the remainder of the year.
The bearish outlook stems partly from the resilience of U.S. shale producers, who locked in favorable prices through hedging strategies when oil was trading at higher levels earlier in the cycle. “The supply from shale producers will be more consistent and insensitive to price movements,” Ying noted, suggesting American production will remain robust regardless of price signals.
Forecasts for supply surplus in 2026 vary widely but are uniformly pessimistic. The International Energy Agency projects excess supply could reach 3.84 million barrels per day, while Goldman Sachs estimates a more modest but still substantial 2 million barrels per day surplus.
U.S. West Texas Intermediate crude, the American benchmark, is faring slightly worse, down 19% for the year at $57.92 per barrel. Both benchmarks are trading at their lowest average annual prices since 2020, according to data from LSEG.
Not all market observers are convinced that fundamental supply-demand dynamics will dictate prices in the months ahead. John Driscoll, managing director of consultancy JTD Energy, cautioned against dismissing geopolitical risks in an increasingly volatile global environment.
“Everybody’s saying it’ll get weaker into 2026 and even beyond,” Driscoll acknowledged. “But I wouldn’t ignore the geopolitics, and the Trump factor is going to be playing out because he wants to be involved in everything.”
Driscoll characterized the current environment as a “powder keg,” suggesting that geopolitical tensions could establish a price floor even as fundamentals point downward.
U.S. inventory data due Wednesday afternoon from the Energy Information Administration may provide additional near-term direction. Preliminary figures from the American Petroleum Institute showed crude and fuel stockpiles increased last week, reinforcing the narrative of ample supply.
As markets close out 2025, the central question facing traders and policymakers alike is whether OPEC+ will implement production cuts aggressive enough to rebalance the market, or whether geopolitical instability will once again reshape the landscape. For now, the fundamentals appear firmly in control, pointing to further pain for oil producers in the year ahead.
WHAT YOU SHOULD KNOW
Oil prices are set to fall over 15% this year—their worst performance since 2020 and third straight annual decline—because supply has overwhelmed demand.
Despite wars in Ukraine and the Middle East, U.S. sanctions on Russia, Iran, and Venezuela, and multiple threats to critical shipping routes, none of it mattered. OPEC+ flooded the market with an extra 2.9 million barrels per day starting in April, badly miscalculating global demand.
Geopolitics took a backseat to fundamentals in 2025. When there’s simply too much oil chasing too little demand, even war and sanctions can’t prop up prices.
Analysts expect this oversupply to persist into 2026, with Brent potentially dropping to $55 per barrel before any meaningful recovery. OPEC+ meets January 4th to discuss production cuts—but prices may need to fall into the low $50s before the cartel acts decisively.
