Oil prices edged slightly higher on Wednesday but remained on course for a decline of more than 15% for 2025, as rising expectations of oversupply continued to weigh on the market. The year has been shaped by geopolitical conflict, higher trade tariffs, increased output from OPEC+, and sanctions targeting Russia, Iran, and Venezuela.
Brent crude futures, down more than 17% for the year, were set for their steepest annual percentage drop since 2020 and a third consecutive year of losses — the longest losing streak on record. West Texas Intermediate was heading toward an annual decline of nearly 19%.
Supply outlook pressures prices
BNP Paribas commodities analyst Jason Ying expects Brent prices to fall to around $55 per barrel in the first quarter of 2026, before recovering to roughly $60 for the remainder of the year as supply growth normalizes and demand remains largely flat.
He noted that U.S. shale producers were able to lock in production at higher prices through hedging, making near-term supply more stable and less sensitive to price movements. As a result, output from shale producers is expected to remain consistent even if prices weaken further.
Oil prices rise modestly on the day
Brent crude futures rose 28 cents, or 0.46%, to $61.61 a barrel by 14:17 GMT. U.S. crude climbed by a similar margin, up 28 cents, or 0.48%, to $58.23 a barrel. According to data from LSEG, average prices for both benchmarks in 2025 are the lowest seen since 2020.
U.S. crude and fuel inventories increased last week, according to market sources citing figures from the American Petroleum Institute. Official inventory data from the U.S. Energy Information Administration is due later on Wednesday.
Geopolitics drive volatility, but fail to offset oversupply
Oil markets began 2025 on a strong note after outgoing U.S. President Joe Biden imposed tougher sanctions on Russia, disrupting supplies to major buyers such as China and India. The impact of the war in Ukraine intensified further after Ukrainian drone attacks damaged Russian infrastructure and disrupted Kazakhstan’s oil exports.
In June, a brief but intense Iran-Israel conflict added to supply concerns by disrupting shipping through the Strait of Hormuz, a critical route for global oil flows. More recently, tensions escalated as Saudi Arabia and the United Arab Emirates became embroiled in a crisis involving Yemen, while U.S. President Donald Trump ordered a blockade on Venezuelan oil exports and threatened further action against Iran.
Despite these risks, oil prices retreated as OPEC+ accelerated its production increases and concerns grew over the impact of U.S. tariffs on global growth and fuel demand.
OPEC+ output increases weigh on outlook
OPEC+ has added approximately 2.9 million barrels per day to the market since April, although the group has paused further output increases for the first quarter of 2026. Its next policy meeting is scheduled for January 4.
Most analysts expect global oil supply to exceed demand next year, with surplus estimates ranging from the International Energy Agency’s projection of 3.84 million barrels per day to Goldman Sachs’ estimate of 2 million barrels per day.
Martijn Rats, global oil strategist at Morgan Stanley, said significant price declines could eventually prompt production cuts from OPEC+. However, he noted that prices would likely need to fall further, potentially into the low $50 range, before such action is taken.
Meanwhile, John Driscoll, managing director of JTD Energy, said geopolitical risks could continue to provide price support despite weak fundamentals. He added that while many expect prices to weaken into 2026 and beyond, geopolitical uncertainty — particularly under President Trump — remains a critical variable for oil markets.
