BY COMFORT OGBONNA
Oil prices were little changed on Wednesday and are on course to end 2025 with steep losses of more than 15%, as persistent oversupply concerns outweighed the impact of wars, sanctions, higher tariffs and geopolitical flashpoints that dominated the year.
Despite repeated bouts of volatility driven by conflict and political risk, the oil market ultimately struggled to sustain rallies, with rising production and softening demand expectations keeping prices under pressure.
Brent crude futures are down nearly 18% for the year, marking their largest annual percentage decline since 2020 and putting them on track for a third consecutive year of losses, the longest losing streak on record for the benchmark. U.S. West Texas Intermediate crude has fared even worse, heading for an annual decline of around 19%, underscoring how global supply growth has continued to outpace consumption despite numerous disruptions.
Analysts say the outlook for prices remains fragile. BNP Paribas commodities analyst Jason Ying expects Brent crude to fall to around $55 a barrel in the first quarter before recovering modestly to about $60 a barrel for the remainder of 2026. According to Ying, supply growth is expected to normalize gradually, while demand is likely to remain largely flat amid slower global economic growth and lingering uncertainty around trade and tariffs.
He noted that U.S. shale producers were able to hedge production at relatively high price levels earlier in the year, allowing them to maintain steady output even as prices weakened. As a result, shale supply has become more consistent and less sensitive to short-term price swings, adding to the overall supply glut.
Average oil prices in 2025 for both Brent and WTI are the lowest since 2020, according to market data. On Wednesday, Brent futures edged up 9 cents to $61.42 a barrel by mid-morning GMT, while U.S. WTI rose 10 cents to $58.05 a barrel. The modest gains did little to alter the broader downward trend that has defined much of the year.
Further weighing on prices, U.S. crude and fuel inventories rose last week, according to market sources citing figures from the American Petroleum Institute. Investors were awaiting official inventory data from the U.S. Energy Information Administration later in the day for confirmation, as rising stockpiles tend to reinforce concerns about weakening demand and excess supply.
Oil markets had begun 2025 on a strong footing after former U.S. President Joe Biden ended his term by imposing tougher sanctions on Russia, which disrupted supplies to major buyers such as China and India. Prices were further supported as the war in Ukraine intensified, with Ukrainian drone attacks damaging Russian energy infrastructure and disrupting Kazakhstan’s oil exports.
In the Middle East, a brief but intense 12-day conflict between Iran and Israel in June raised fears of disruptions to shipping through the Strait of Hormuz, a critical route for global seaborne oil, helping to push prices higher during that period.
Geopolitical tensions continued to simmer later in the year. Saudi Arabia and the United Arab Emirates, two of OPEC’s largest producers, became embroiled in a renewed crisis over Yemen, while U.S. President Donald Trump ordered a blockade on Venezuelan oil exports and threatened further military action against Iran. These developments added a geopolitical risk premium to the market, but the impact proved short-lived as fundamentals reasserted themselves.
Prices eventually cooled as OPEC+ accelerated its output increases and as concerns mounted over the effect of U.S. tariffs on global economic growth and fuel demand. The producer group and its allies have released roughly 2.9 million barrels per day into the market since April and have now agreed to pause further output hikes in the first quarter of 2026. The next OPEC+ meeting is scheduled for January 4, where producers are expected to reassess market conditions.
Most analysts forecast that supply will exceed demand next year, though estimates vary widely. The International Energy Agency sees a surplus of about 3.84 million barrels per day, while Goldman Sachs projects a smaller oversupply closer to 2 million barrels per day. Morgan Stanley’s global oil strategist Martijn Rats said that if prices were to fall sharply into the low $50s, OPEC+ would likely respond with new production cuts. However, if prices remain near current levels, he expects the group to continue gradually unwinding existing cuts after the first-quarter pause.
Some analysts caution against focusing solely on supply-demand balances. John Driscoll, managing director of consultancy JTD Energy, believes geopolitical risks could continue to lend support to prices even as fundamentals point toward oversupply.
While many market participants expect prices to weaken further into 2026 and beyond, Driscoll argues that political uncertainty, particularly involving the United States and President Trump’s unpredictable approach to foreign policy, could still trigger sudden price spikes. In his view, geopolitics remains a powerful wild card in an otherwise bearish oil market outlook.
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