Earlier this week, Brent crude slipped below $60 per barrel, and West Texas Intermediate dipped to $55, under the combined weight of a projected supply overhang and media reports claiming the United States and Russia were close to a peace deal for Ukraine. Even a blockade on sanctioned tankers carrying Venezuelan crude ordered by President Trump did not do much for prices. The question now is just how low Brent and WTI could sink from here.
President Trump said this week that a peace deal for Ukraine is closer than ever. However, this may be just an expression of optimism because recent developments in the negotiations process suggest Russia is rather unwilling to make any concessions, especially territorial ones while the European backers of the current Ukrainian government have their own plan that, observers note, crosses all of Russia’s red lines, including territorial concessions, the size of the Ukrainian army and, not least, the presence of European troops in the Ukraine as a peacekeeping force, which from Russia’s perspective is similar to the Ukraine joining NATO.
In other words, a peace deal is far from certain, but this has not prevented the latest media updates on the issue from prompting traders to sell oil, bringing benchmark prices to the lowest in months. Interestingly, this is happening despite the fact that Russian oil exports have remained relatively stable, even after the latest U.S. sanctions. As ING analysts noted in a recent update, “Russian seaborne oil exports have held up well since the imposition of sanctions on Rosneft and Lukoil,” yet “this oil is still struggling to find buyers. The result is a growing volume of Russian oil at sea.”
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Meanwhile, JP Morgan has reiterated its expectation of an oversupplied market, saying in a recent note that “At the risk of flogging a very dead horse, our message to the market has remained consistent since June 2023. While demand is robust, supply is simply too abundant.” The Wall Street major is not alone in this perception. Most analysts expect lower prices in 2026.
Last month, Goldman Sachs commodity analysts said they expected Brent crude to average $56 per barrel in 2026, with West Texas Intermediate at $52, citing, once again, an oversupplied market. Yet it was Goldman again that quickly adjusted its oil demand growth outlook following the International Energy Agency’s revision of peak oil demand projections. In the update, made in November, Goldman dropped its prediction of peak oil demand growth by 2034, now expecting demand to continue growing until at least 2040.
In a more recent update, the bank acknowledged that low prices will at some point start affecting production, leading to a rebound. “We expect oil prices to pick up in 2027 as the market returns to balance and shifts focus to incentivizing investment, given the reduction in oil reserve life, the maturing of US shale, and solid demand growth,” Goldman commodity analysts wrote.
WTI at or around $50 is not the best price level for U.S. shale, even for the supermajors. It is definitely not the best price level for OPEC, either. So, we might reasonably expect a reaction from both should prices remain extra-depressed. Growth in U.S. shale output is already moderating in response to price depression. For 2026, the Energy Information Administration actually expects a dip of around 100,000 barrels daily from this year’s levels.
According to Saxo Bank, traders would need some hard evidence that supply is tightening before they turn more bullish, which is hardly surprising after months of glut predictions. Energy markets, the Danish bank’s head of commodity strategy, Ole Hansen, wrote in an update, “may need clearer evidence of tightening balances or supply discipline before sentiment eventually improves, as we believe it will especially towards the second half of 2026.”
What’s more, “The sense that the market is well supplied, at least in the near term, continues to outweigh episodic geopolitical risk premiums,” Hansen noted, which explains why the tanker blockade that President Trump ordered yesterday against Venezuela failed to have a pronounced effect on oil prices, barely pushing Brent crude back above $60 per barrel.
In addition to excess supply, analysts tend to note slowing oil demand. Yet what few mention is the fact that the tariff pressure from earlier this year is largely gone. Trump wanted trade deals and got them, and now things are more or less back to normal. In other words, fear of tariffs is no longer the same concern for oil demand that it was in the first quarter of the year. This, in turn, suggests that demand may already be recovering, not only in China.
The new year is unlikely to bring fast relief to oil markets. It will take hard evidence of production cuts, both in OPEC+ and elsewhere, notably in U.S. shale, to convince traders that the market is returning to balance. Until then, however, the possibility of supply responses among producers will keep a floor under oil prices, as will the uncertainty around the Ukraine peace deal, at least until it becomes a fact.
By Irina Slav for Oilprice.com
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