January 01, Colombo (LNW): Global oil prices slid on Wednesday, rounding off a volatile year with losses approaching 20 per cent, as mounting concerns over excess supply overshadowed a backdrop of conflict, sanctions and shifting production policies.
Brent crude ended the year nearly a fifth lower, marking its steepest annual fall since 2020 and extending a record run of three consecutive yearly declines. US benchmark West Texas Intermediate mirrored the trend, also shedding close to 20 per cent over the course of 2025.
On the final trading day of the year, Brent settled at $60.85 a barrel, down 48 cents, while WTI slipped 53 cents to $57.42. The late-year weakness reflected growing unease about the balance between supply and demand heading into 2026.
Analysts at BNP Paribas expect further pressure in the near term, forecasting Brent could slide to around $55 a barrel in the first quarter before stabilising near $60 later in the year as supply growth evens out and demand remains subdued. The bank noted that US shale producers, having locked in higher prices through hedging, are likely to maintain steady output regardless of short-term price swings.
Recent data from the US Energy Information Administration offered a mixed picture. While crude inventories fell by nearly two million barrels in the final week of December, stocks of petrol and distillates rose sharply, exceeding market expectations and pointing to softer seasonal demand after the holiday period. US oil production also reached a record high in October, reinforcing concerns about abundant supply.
The oil market’s trajectory in 2025 was shaped by a complex mix of geopolitical shocks and policy shifts. Prices surged early in the year following tougher sanctions imposed on Russia, which disrupted flows to major buyers such as China and India. Tensions were further inflamed by attacks on energy infrastructure linked to the Ukraine war and a brief but intense Iran–Israel conflict that threatened shipping through the Strait of Hormuz.
More recently, disputes involving key Middle Eastern producers, renewed pressure on Venezuelan exports and heightened rhetoric from Washington added to uncertainty. However, these risks were ultimately outweighed by the decision of OPEC+ to accelerate production increases, releasing millions of barrels a day into the market since April.
The producer group has since opted to pause further output hikes in the first quarter of 2026, with its next policy meeting scheduled for early January. Even so, most forecasts suggest supply will outstrip demand next year, with estimates of the surplus ranging from around two to nearly four million barrels per day.
Some analysts believe prices would need to fall into the low $50 range to prompt meaningful production cuts, while others caution that geopolitical flashpoints could still lend support to the market. Despite expectations of weaker fundamentals into 2026, many observers warn that political risk — particularly from an unpredictable global landscape — remains a factor investors cannot afford to ignore.
