The benchmark U.S. NYMEX crude fell below $60 a barrel last week, signaling the start of a bearish trend in global oil markets. Gains from the summer rally have been erased as prices have dropped more than 20% from January highs of $74.
The forecast for the remainder of 2025 and beyond has been altered by this severe decline, which is the result of a combination of supply side strength and demand-side weakness.
The decline in oil prices below $60 highlights a market characterized by robust supply and weak demand. Fundamentals indicate sustained downturn as U.S. output reaches all time highs, OPEC+ is hesitant to make drastic cuts, and China's consumption shifts toward petrochemicals.
The ongoing mismatch between production and demand is blamed for the current downturn. Global output has soared, outpacing moderate increase in consumption despite geopolitical risks and sanctions against Russia.
For months, inventories have been continuously increasing, indicating that the market is well supplied. The slide has been exacerbated by technical factors; algorithmic selling was initiated when Brent and WTI crossed important support levels.
Since January, the world's oil output has increased by an incredible 6.2 million barrels per day (bpd), reaching 108.2 mb/d in October. OPEC+ and non OPEC producers divided this rise nearly equally.
Thanks to technology advancements and cost savings in shale and offshore projects, non OPEC nations including the United States, Brazil, and Guyana have made significant contributions.
With production reaching a record 13.86 million bpd in November, the US continues to be the world's leading producer. Due to the worldwide imbalance caused by this spike, OPEC and its allies are now compelled to protect market share rather than prices.
Fearing long term erosion of power, OPEC+ has gradually relaxed output limitations despite voluntary reduction. As a result, the market is overflowing with petroleum, with U.S. shale acting as the de facto swing producer and reacting fast to price signals.
In the past, prices might be stabilized by OPEC's coordinated reduction. However, because to growing non OPEC production and internal conflicts, its hold has loosened in recent years. Prioritizing market share over pricing is the group's most recent plan, which is similar to the 2014 playbook.
Despite impending surpluses, most analysts believe that OPEC+ will not make significant cuts in 2026. OPEC's price power has been weakened by structural changes, such as the growth of alternative energy and fracking in the United States.
By historical measures, the growth in the world's oil demand is still moderate. A increase of only 790,000 bpd this year and 770,000 bpd in 2026 is predicted by the International Energy Agency (IEA), which is significantly less than pre pandemic rates.
Slower industrial activity, reduced freight volumes, and the growing popularity of electric vehicles are some of the contributing factors.
While demand in emerging nations is recovering unevenly, it remains stagnant in industrialized economies. Persistent weakness is confirmed by high frequency indicators like container traffic and gasoline use in the United States.
China, which used to be the main driver of the world's oil demand, offers a conflicting image. October saw an 8.2% year over year increase in crude imports as refiners increased runs and stockpiling quickened.
However, structural shifts such as rapid EV adoption, LNG powered vehicles, and a downturn in the real estate sector have caused the underlying fuel demand gasoline, diesel, and jet fuel to plateau.
Transport fuels are no longer the primary growth engine, but rather petrochemical feedstocks. China's strategic reserves, which cushion prices but conceal weak organic demand, are estimated by analysts to be more than 1.3 billion barrels.
The imbalance is expected to continue. According to the IEA, if present trends continue, there might be a surplus of around 4% of world demand in 2026.
While demand growth is predicted to be less than 1 mb/d each year, global supply is expected to increase by 3.1 mb/d in 2025 and 2.5 mb/d in 2026. It is anticipated that inventories, which are already at multi year highs, would continue to rise through the upcoming year, strengthening the pessimistic outlook.
Prospects for the near future are still negative. Further declines are suggested by seasonal weakening in demand, growing stocks, and consistent OPEC+ output.
WTI prices are projected to be crowded between $52 and $75 per barrel, with lower risks, absent geopolitical shocks or unforeseen supply disruptions.
Any persistent surge will be limited by structural considerations such as energy transition, efficiency advances, and alternative fuels.
The general story for 2026 is one of plentiful supply and cautious demand, which will probably keep prices under pressure far into next year, even though short-term volatility may bring temporary gains.
