Oil prices fell on Wednesday (December 31st), posting a nearly 20% annual loss, as expectations of oversupply grew in a year marked by war, higher tariffs, increased OPEC+ production, and sanctions against Russia, Iran, and Venezuela.

Brent crude futures fell about 19% in 2025, the most substantial annual percentage decline since 2020 and the third consecutive year of losses, the longest streak on record. U.S. West Texas Intermediate (WTI) crude posted a nearly 20% annual decline.

On the final day of the year, Brent futures closed at $60.85 per barrel, down 48 cents, or 0.8%. U.S. WTI crude fell 53 cents, or 0.9%, to $57.42 per barrel.

BNP Paribas commodities analyst Jason Ying predicts Brent prices will fall to $55 per barrel in the first quarter before recovering to $60 per barrel for the remainder of 2026 as supply growth normalizes and demand remains stable.

"The reason we're more pessimistic than the market in the short term is because we think US shale producers are able to hedge at a high level," he said.

"So supply from shale producers will be more consistent and less sensitive to price movements."

US crude oil inventories fell last week, but distillate and gasoline inventories grew more than expected, according to data from the US Energy Information Administration.

"This is a fairly supportive report on the decline in crude oil, but the underlying report isn't so good, and it's likely to be a difficult January and February with the holidays behind us," said John Kilduff, partner at Again Capital Markets.

Crude oil inventories fell by 1.9 million barrels to 422.9 million barrels in the week ending December 26, the EIA said, compared with analysts' expectations in a Reuters poll for a decrease of 867,000 barrels.

U.S. gasoline stocks rose by 5.8 million barrels in the week to 234.3 million barrels, the EIA said, compared with analysts' expectations for a 1.9 million-barrel increase. Distillate inventories, which include diesel and heating oil, rose by 5 million barrels to 123.7 million barrels, compared with projections for a 2.2 million-barrel increase.

U.S. oil production hit a record in October, according to the latest data from the EIA. The oil market started 2025 strongly when former President Joe Biden left office by imposing tougher sanctions on Russia, disrupting supplies to key buyers China and India.

The impact of the war in Ukraine on energy markets intensified when Ukrainian drones damaged Russian infrastructure and disrupted Kazakhstan's oil exports.

The 12-day Iran-Israel conflict in June added to the supply threat by disrupting shipping in the Strait of Hormuz, a key route for global seaborne oil, triggering a surge in oil prices.

In recent weeks, OPEC's largest producers, Saudi Arabia and the United Arab Emirates, have become embroiled in the Yemen-related crisis. US President Donald Trump has ordered a blockade on Venezuelan oil exports and threatened further attacks on Iran.

OPEC+ ACCELERATES PRODUCTION INCREASES

However, prices have eased after OPEC+ accelerated its production increases this year and as concerns about the impact of US tariffs weighed on global economic growth and fuel demand.

OPEC+, the Organization of the Petroleum Exporting Countries and allied oil-producing countries, paused oil production increases for the first quarter of 2026 after releasing about 2.9 million barrels per day to the market since April. The next OPEC+ meeting will be held on January 4.

Most analysts expect supply to exceed demand next year, with estimates ranging from 3.84 million barrels per day according to the International Energy Agency to 2 million barrels per day according to Goldman Sachs.

"If prices really do fall substantially, I imagine you'll see some reductions (from OPEC+)," said Martijn Rats, global oil strategist at Morgan Stanley. "But it probably needs to go further down from here—perhaps into the $50s." "If today's prices hold, after the lull in Q1, they'll probably continue to ease these cuts."

John Driscoll, managing director of consultancy JTD Energy, expects geopolitical risks to support oil prices despite market fundamentals pointing to oversupply.

"Everyone says prices will be weak through 2026 and even beyond," he said. "But I wouldn't discount geopolitics, and the Trump factor will play a role because he wants to be involved in everything." (alg)

Source: Reuters.com