Oil prices edged lower on Wednesday and are on course to post a decline of more than 15% in 2025, as mounting concerns over global oversupply overshadowed a year marked by wars, sanctions and shifting trade policies.
Brent crude futures were down 20 cents at $61.13 a barrel by 0900 GMT, taking their annual decline to around 18%—the steepest since 2020, according to LSEG data.
This also marks Brent’s third consecutive yearly fall, its longest losing streak on record. US West Texas Intermediate crude slipped to $57.75 a barrel and is headed for a 19% annual drop, with average prices for both benchmarks at their lowest levels since 2020.
Oversupply caps rallies despite geopolitical shocks
Analysts say expectations of excess supply have fundamentally reshaped near-term trading behaviour. The International Energy Agency has projected that global oil supply could exceed demand by about 3.85 million barrels per day in 2026, a surplus large enough to cap rallies even when geopolitical risks flare up.
This outlook has encouraged traders to fade price strength, viewing disruptions as temporary rather than structurally market-altering. As a result, crude has shown a muted response to geopolitical headlines, signalling that the market is increasingly anchored by supply durability rather than episodic shocks.
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BNP Paribas commodities analyst Jason Ying told Reuters he expects Brent to dip to $55 a barrel in the first quarter of 2026 before recovering to around $60 for the rest of the year. He said US shale producers’ ability to hedge at higher prices has made supply more resilient.
“The supply from shale producers will be more consistent and insensitive to price movements,” Ying said.
Navneet Damani, Head of Research – Commodities at Motilal Oswal Financial Services, said crude prices remained under sustained pressure in 2025 as rising supply, fading geopolitical risk premiums and a weak demand outlook outweighed intermittent disruptions. He noted that sanctioned barrels from Russia, Iran and Venezuela continued flowing, increasing oil-on-water storage and blunting fears of lasting supply shocks.
A volatile year, but limited upside
Oil markets began 2025 on a strong footing after tougher US sanctions on Russia disrupted flows to major buyers such as China and India. Prices were further supported by the intensification of the Ukraine war, drone attacks on Russian energy infrastructure, disruptions to Kazakhstan’s exports and a brief Iran-Israel conflict that threatened shipping through the Strait of Hormuz.
More recently, tensions involving Yemen, US restrictions on Venezuelan oil exports and renewed pressure on Iran added to geopolitical uncertainty. However, each spike proved short-lived as OPEC+ accelerated output increases and concerns over the impact of US tariffs weighed on global growth and fuel demand.
Damani said OPEC+ shifted strategy in the first half of the year from price defence to market-share protection, returning supply aggressively. Between April and December, the group added nearly 2.9 million barrels per day, weakening its pricing authority and reinforcing surplus conditions.
Goldman Sachs, in its Commodities Outlook 2026, said next year is likely to remain characterised by excess oil supply, even as risks linked to Russia, Venezuela and Iran persist. The bank also flagged a longer and more pronounced LNG supply wave through the end of the decade.
OPEC+ has paused output hikes for the first quarter of 2026 after releasing substantial volumes into the market since April. The group’s next meeting is scheduled for January 4. Most analysts expect supply to exceed demand next year, with surplus estimates ranging from around 2 million barrels per day to nearly 4 million barrels per day.
India sees shift in Russian crude flows
In India, crude imports from Russia fell sharply in December to their lowest levels in three years. Data from Kpler showed imports declined to about 1.14 million barrels per day, down from 1.84 million barrels per day in November, following sanctions on Russian producers Rosneft and Lukoil.
Despite the decline, Russia remained India’s largest crude supplier, accounting for roughly 25% of total imports. Indian refiners pivoted towards suppliers in the Middle East, West Africa and the Americas, while also exploring indirect Russian flows.
“Beneath the surface, Russian crude flows into India are increasingly being rerouted through a growing web of intermediaries,” said Sumit Ritolia, Lead Research Analyst at Kpler, adding that Russia is likely to retain a structural presence in India’s crude basket due to favourable pricing economics and refinery compatibility.
As markets look ahead to 2026, analysts say oil prices are likely to remain range-bound, with surplus expectations anchoring sentiment. Unless geopolitical disruptions translate into sustained and material supply losses, rallies are expected to fade quickly in an oversupplied market.