“At the same time that the global economy weakens, the flood-gates for US oil and gas production will be opened, further compounding the over-supply situation. On that basis, it seems likely that once again we will have a flat-lining or a lowering of the oil price in 2025”. So we wrote this time last year (January 2025 – Portland Fuel), when we made our oil price forecasts for 2025. This means that once again, we got our annual predictions correct with Brent Crude starting the year (2nd Jan 2025) at $75.93 per barrel (bbl) and closing the year 12 months later (31st Dec) at $60.85.
Critics might justifiably argue that a drop of 20% is hardly “flat-lining” and this is probably a fair criticism. In our defence however, the oil price was very stable for great swathes of the year. In the first quarter of 2025 for example (Jan – Mar), the price started at $75.93 and ended at $74.74, with an average price for the 3 months of $75.03. There was virtually no movement in the oil price in this period. The same happened again in Q325 with the oil price starting July at $67.11 / bbl and finishing September at $67.02. The average price for this period was $68.16; another decent case for a flatlining market. By comparison, both Q225 and Q425 saw much greater and consistent price falls. Apr 25 – Jun 25 saw the price fall from $74 to $67 (down by 9%), whilst Q4 prices went down from $67 to $61 (down by another 9%).
Refined prices followed a similar path (downward trend), but in a situation that reflected the ongoing shortage of refined diesel and jet fuel, price drops were not as marked as those for crude. Diesel for example, saw prices open the year (2nd Jan 2025) at $722 per tonne ($97 / bbl) and end (31st Dec 2025) at $636 / t ($85 / bbl); a fall of only 12% versus the crude drop of 20%. In pence per litre (ppl) terms, UK consumers should have benefitted from the strengthening of the £ GBP against the $ USD, which pushed ppl prices down at a quicker rate. Retail diesel (excluding duty and VAT) started 2025 at 49.32ppl (when the £ GBP was worth $1.2373) and finished in December at 39.93ppl (when the £ GBP was worth $1.3451). In theory, this should have given a price drop of 19% versus the 12% drop in $ denominated wholesale diesel. Sadly though, because diesel comes with a fixed duty rate of 52.95ppl, consumers ended up only seeing a 9% drop in the actual price paid; 102.27ppl in January (ie, 49.32ppl diesel + 52.95ppl duty) versus 92.88ppl (ie, 39.93ppl diesel + 52.95ppl duty) in December…
One other prediction we made last year was as follows; whilst the general direction of travel for prices might be downwards, any number of geo-political flare-ups (Ukraine, Iran, Syria, Taiwan) have the potential to generate short-term spikes in the oil price. This forecast also came to pass during the 12 day Iran-Israel “war” in June, culminating in the USA launching “bunker-busting” missiles on Iranian nuclear facilities. In that month (Jun 25), we saw the price go up from $64.63 to almost $79 / bbl on 19th June, which by any standards is a significant price spike over a 14 (working) day period (22% rise). However, the fact that the oil price had dropped back again to $67 / bbl by the start of the next month (1st July), only served to highlight the overwhelming fundamentals that were at play throughout the year.
Those fundamentals of course were that supply exceeded demand and this trend looks set to continue in 2026. Oil producers it seems are on a kamikaze mission to increase oil production even though demand remains stagnant. The most optimistic growth forecasts for crude consumption only show an increase in demand of circa 1.1m bpd in 2026 versus crude supply increases of up to 3m bpd. Much of this supply growth will come from non-OPEC countries (USA, Guyana, Brazil), which means that even if OPEC did reduce their production (currently forecast to increase by about 0.7m bpd), the effect would be muted.
2026 then, looks likely to have a global surplus of oil to the tune of 2m bpd and this can only mean one thing, which is that prices will continue to fall. Obviously last year’s caveat around “geo-political flare-ups” and corresponding price spikes remains valid, but the fundamentals of over-supply will only return as soon as any crisis passes. In the first few months of the year, we may see the “dulling” effect of tank storage, as surplus production builds-up global inventory levels. But there is only so much storage available and at some point, those tanks will become full and the product will have to go directly into a market that doesn’t need it. On that basis, we see a likelihood of crude prices falling below $50 / bbl in the first half of this year. Thereafter, there should be some stabilisation or even modest rises, as first the US shale producers (some of whom will go under) and then the likes of OPEC, back-off oil production, in an attempt to push prices back-up.
Finally, it should be noted that all of this is before any newly “liberated” Venezuelan oil hits global markets. It goes without saying that any new production from Venezuela would simply add to the glut situation, but Trump’s confidence in Venezuelan crude is misplaced. We do not expect Venezuelan production to play any part in oil market movements in 2026 – more on that in next month’s Oil Market Report.
