Oil closed out the year with its steepest annual loss since 2020 as the market confronts wide-ranging geopolitical risks and steadily rising supplies across the globe. A punishing surplus is expected to weigh on prices in 2026.
West Texas Intermediate fell 0.9% to settle at $57.42, completing a 20% decline for the year. In the short term, traders are focused on an upcoming OPEC+ meeting and President Donald Trump’s policies toward major producers Russia, Iran, and Venezuela.
But the long-term narrative has remained consistent: oil markets are oversupplied. Both the International Energy Agency and the US government see production exceeding consumption by just over 2 million barrels a day in 2025, with that surplus worsening in the coming year.
OPEC+ roiled markets earlier this year when it raised output, reversing its longstanding policy of defending prices in an apparent effort to reclaim market share. This came as countries including Brazil and Guyana were boosting supply and the US pumped at record levels. The producer group is expected to hold off on output hikes during talks this weekend.
The drop in crude has helped reduce inflationary pressures, aiding central bankers as they seek to contain price gains. The US Federal Reserve cut rates three times in 2025, and minutes from policymakers’ last meeting showed most officials saw additional reductions as appropriate. Still, the slump also threatens to reshape the budgets of major oil-producing nations and companies.
“The oil market is set to remain oversupplied into 2026, with strong non-OPEC production from the US, Brazil, Guyana, and Argentina outpacing uneven global demand,” said Kaynat Chainwala, an analyst at Kotak Securities Ltd. Prices should stay range-bound between $50 and $70, with risks over Venezuelan or Russian supply remaining supportive, she added.
In the US, a weekly government report on Thursday showed that overall petroleum stocks were at their highest since October, with a strong build in refined products outpacing the draw in crude oil.
China Storage
Despite the drop in prices this year, a clutch of factors has ensured that crude futures have not fallen further. Prices held within a range above $65 for much of the summer despite swelling production, as much of the oversupply ended up in storage tanks in China, far from the pricing hubs for crude futures. In contrast, western facilities remained relatively empty, with tank farms at Cushing, Oklahoma, the pricing point for West Texas Intermediate futures, heading for their lowest annual average storage level since 2008.
Output of gassy types of oil such as propane has also surged as US shale fields produce lighter fuels. Those volumes have had limited impact on crude pricing.
Geopolitics will also shape the market outlook into next year. The US is driving efforts to end the war in Ukraine, an outcome that could ease the volume of Russian oil building up at sea. The US is also seizing tankers carrying Venezuelan cargoes, forcing the South American nation to reduce output in recent days.
Trump also said this week that he would strike Iran again if it rebuilds its nuclear program. Brent futures surged above $80 after he authorized attacks on Iran earlier this year but slid rapidly when it became clear the conflict was ending.
Oil Prices
WTI for February fell 0.9% to settle at $57.42 a barrel in New York.
Brent for March settlement fell 0.8% to settle at $60.85 a barrel.
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