Global oil prices are set to record their sharpest yearly drop since 2020. Rising supply has weighed on the market despite a year dominated by wars, sanctions, and geopolitical shocks.
By Wednesday, Brent crude had fallen more than 17 per cent in 2025. That marks its biggest annual percentage decline since 2020. The benchmark is also on track for a third consecutive yearly loss, its longest losing streak on record.
U.S. West Texas Intermediate (WTI) is heading for a near 19 per cent annual decline.
Average prices for both Brent and WTI in 2025 are the lowest since 2020, according to LSEG data.
Brent futures fell 31 cents to $61.02 a barrel by 1808 GMT. WTI declined 36 cents to $57.59.
Oversupply outweighs wars, sanctions, and disruptions
Analysts say oversupply has outweighed geopolitical risks. These include sanctions on Russia, Iran, and Venezuela.
BNP Paribas commodities analyst Jason Ying expects Brent to fall to about $55 a barrel in the first quarter of 2026. He sees prices recovering to around $60 for the rest of the year. Supply growth should normalise, while demand remains flat.
Ying said U.S. shale producers hedged production at high price levels. As a result, output remains steady despite falling prices. Shale supply has become less sensitive to price movements.
U.S. inventory data sent mixed signals to the market. The Energy Information Administration reported a larger-than-expected crude draw last week.
Crude inventories fell by 1.9 million barrels to 422.9 million barrels in the week ended December 26. Analysts had expected a draw of 867,000 barrels.
Refined product stocks, however, rose sharply. Gasoline inventories increased by 5.8 million barrels to 234.3 million barrels. Distillate stocks, including diesel and heating oil, climbed by 5 million barrels to 123.7 million barrels. Both figures exceeded forecasts.
John Kilduff of Again Capital Markets said the data offered limited support for prices. He warned that demand often weakens after the holiday season.
Early-year shocks lift prices, gains later fade
Oil markets started 2025 on a strong footing. The United States imposed tougher sanctions on Russia at the end of former President Joe Biden’s term. The move disrupted supplies to major buyers, including China and India.
The war in Ukraine also tightened markets. Ukrainian drone attacks damaged Russian infrastructure and disrupted Kazakhstan’s oil exports.
Prices jumped again in June during a 12-day Iran–Israel conflict. The fighting disrupted shipping through the Strait of Hormuz, a key route for global oil trade.
Despite these shocks, price gains proved short-lived. Rising supply and weaker demand expectations soon took hold.
OPEC+ supply surge clouds 2026 outlook
Prices eased as OPEC+ accelerated output increases. Concerns over U.S. tariffs also weighed on global economic growth and fuel demand.
OPEC+, which includes the Organization of the Petroleum Exporting Countries and its allies, has released about 2.9 million barrels per day since April. The group has paused further output hikes for the first quarter of 2026. Its next meeting is scheduled for January 4.
Most analysts expect supply to exceed demand next year. The International Energy Agency forecasts a surplus of 3.84 million bpd. Goldman Sachs estimates a smaller surplus of about 2 million bpd.
Geopolitics may limit further downside
Morgan Stanley’s global oil strategist, Martijn Rats, said OPEC+ could consider new cuts if prices fall into the low $50s. He added that the group may continue unwinding cuts if prices hold after the first-quarter pause.
John Driscoll, managing director of JTD Energy, said geopolitical risks could still support prices. He pointed to tensions in the Middle East and uncertainty over U.S. foreign policy. However, he noted that market fundamentals point to oversupply as 2026 approaches.
