As the sun sets on 2025, the oil market is headed for its steepest annual decline since 2020, when COVID-19 had decimated demand.
Often known as the “black gold”, oil has had a difficult year among the commodity complex due to concerns about a serious glut in the coming months.
Against such a backdrop, all eyes will be on the Organization of the Petroleum Exporting Countries and allies in 2026, and the way the cartel navigates its decision-making process to balance a volatile market.
Most experts believe that OPEC+ is likely to keep oil production unchanged deep into 2026.
“OPEC would likely keep oil production levels frozen well into 2026,” Mark Temnycky, a nonresident fellow at the Atlantic Council’s Eurasia Center, told Invezz.
This strategy aims to prevent prices from falling too low by balancing supply against growing global demand.
Source: Commerzbank Research
Why supply is set to overwhelm demand?
The oil market is also facing a considerable oversupply in the coming year, which is why prices are likely to remain under pressure
OPEC+’s primary reason for significantly increasing its oil production—by 2 million barrels per day since April—was to reclaim lost market share, and this expansion of supply is the main factor contributing to the current oversupply.
Despite the recent announcement of a pause in production increases for the first quarter of 2026, OPEC+ is still expected to pursue the reversal of the remaining voluntary production cuts thereafter.
“This could bring an additional 1 million barrels per day to the market in the coming year,” Carsten Fritsch, commodity analyst at Commerzbank AG, said in a report.
Oil supply is projected to significantly outpace oil demand next year, leading to a substantial surplus.
The International Energy Agency (IEA) forecasts that demand will increase by approximately 700,000 barrels per day, a growth rate consistent with the current year.
Slower growth in China’s oil demand has significantly slowed overall demand growth in recent years. This oversupply is expected to result in rising inventories.
“The fact that commercial oil stocks in OECD countries have risen only slightly so far and remain below the five-year average is mainly due to China’s stockpiling,” Fritsch said.
OPEC+ increases output — and deepens the glut
OPEC’s strategy going into next year would depend on several factors, including the cohesion among its members.
“In 2026, OPEC will be concerned about maintaining a sense of unity among its members, since maintaining the cohesion of OPEC is more important than attempting to drive up prices quickly,” Ethan Heine, president and chief executive officer at Suntrek Solar, told Invezz.
Even if a peace agreement between Russia and Ukraine comes into effect, the group will still be cautious in their approach to the market because it is becoming increasingly difficult to predict when supply shocks may occur and there are many mixed signals coming from various parts of the world regarding demand for oil.
The most direct way to ensure the alignment of member states remains through restricting their oil production, according to Heine.
This strategy is especially critical given that global inventory levels are still vulnerable to geopolitical events and the inherent risks in oil shipping.
According to Temnycky, the cartel is likely to pause production increases beyond the first quarter of 2026.
The group is anticipating an oversupply exceeding one million barrels daily.
This surplus is mainly driven by production growth outside of OPEC, particularly from US shale oil and Guyana.
Temnycky said:
Saudi Arabia and allies hold the real leverage through voluntary cuts totaling 3.24 million barrels per day.
They will extend restraint to defend Brent above $70 unless demand surges unexpectedly.
Russia-Ukraine peace deal talks add to uncertainty
Even with increasing talks about a possible peace deal between Russia and Ukraine, the market still awaits an official confirmation.
‘My own view is that no matter how hard the Trump administration presses, (Russian President Vladimir) Putin will refuse to agree to peace,” David Morrison, senior market analyst at Trade Nation, told Invezz.
According to Morrison, if Putin resists, US President Donald Trump’s patience will run out, and the only effective strategy to counteract Moscow is to cripple the Russian economy.
You don’t do that with sanctions. You do that by driving down the oil price to $20 per barrel and keeping it there. So, that’s what I expect Trump to do, with plenty of help from OPEC, should Russia not agree to a peace deal.
The enforcement of quota discipline among OPEC member countries has both political and economic dimensions, particularly if sanctions against Russia are removed, according to Suntrek Solar’s Heine.
Russia benefits from continued OPEC participation, as it offers market credibility and pricing power. However, there is a constant risk that Russia might engage in “quiet” overproduction if the government perceives a threat to its export revenues, Heine added.
Meanwhile, the market will have to look out if a peace deal happens, and if Russia is allowed to expand oil production.
“I imagine Russia will push for production cuts from everyone else, to push up the oil price, while pleading for an exemption which they will justify as they need to rebuild their economy, and turn it away from a war footing,” Morrison said.
If OPEC falls for that then we’re heading for even more problems over the next decade.
Where could oil prices settle in 2026?
Ultimately, numerous factors are involved, but Trump’s objective is to lower oil prices.
Should Putin persist with the war in Ukraine, oil prices are likely to reach a level—around $50 per barrel—at which most major US producers can still operate profitably, Morrison noted.
Most experts believe that oil prices are expected to face downward pressure in 2026, with concerns about a serious glut.
“A Russia-Ukraine peace deal could push prices toward $60 by easing sanctions and boosting Russian exports, though Ukraine’s refinery strikes sustain some tightness if talks stall,” Temnycky said.
It is also unlikely that a deal between Russia and Ukraine will be reached anytime soon. Investors should favor diversified energy plays, such as LNG exporters, over pure upstream bets, while watching OPEC’s January decisions for volatility cues.
Meanwhile, Heine believes that Brent oil prices are likely to trade around $60 per barrel, with West Texas Intermediate slightly below.
It is anticipated that this pricing range will generate adequate revenue for national budgets while simultaneously discouraging non-OPEC producers from significantly boosting their oil production, Heine added.
Many of OPEC’s member countries are willing to accept Brent crude prices in excess of $60 for a longer period of time than would have been anticipated earlier in the year, since they place a greater emphasis on predictable revenue from oil exports than they do on potentially higher but less stable prices for oil.
Meanwhile, Morrison said that oil prices could rise to $70 per barrel and then flatten out if a peace deal is reached. However, declining demand from China would keep a lid on prices.
This should keep a cap on prices. Having said all that, and knowing my trading record, it will probably be $200 by June.
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