Global oil prices opened 2026 on a steady note after suffering their sharpest annual decline since 2020. Investors are weighing persistent oversupply concerns against rising geopolitical tensions across key producing regions. Brent crude traded near $60.81 per barrel, while US West Texas Intermediate hovered around $57.39. Both benchmarks moved marginally on the first trading day of the year, signalling caution rather than confidence.
Markets Absorb Oversupply Pressures
The nearly 20 percent annual decline in Brent and WTI during 2025 reflected deepening fears of excess supply. Market participants remained concerned about slowing demand growth and expanding production capacity. Moreover, trade tensions and tariff uncertainties continued to suppress bullish sentiment. As a result, fundamentals dominated price action despite repeated geopolitical shocks.
Ukraine War Keeps Energy Risks Alive
At the same time, geopolitical risks refused to fade. Russia and Ukraine exchanged accusations of civilian attacks on New Year’s Day, underlining the fragility of ongoing diplomatic efforts. Ukraine has intensified strikes on Russian energy infrastructure in recent months. These actions aim to disrupt Moscow’s revenue streams and weaken its military financing. Consequently, energy traders continue to price in regional risk premiums, although these remain limited.
Sanctions Add Pressure on Venezuela
Elsewhere, pressure on Venezuela’s oil sector increased after new sanctions targeted companies and oil tankers operating in the country. These measures signalled a tougher stance on illicit energy flows. However, markets viewed the impact as contained due to existing restrictions and limited export capacity. Therefore, sanctions failed to trigger meaningful price volatility.
Middle East Tensions and OPEC+ Focus
In the Middle East, tensions between key oil producers added another layer of uncertainty. A dispute linked to Yemen led to halted flights at Aden airport, raising concerns ahead of a crucial OPEC+ meeting. Traders largely expect the group to maintain its pause on output increases during the first quarter. This decision could help prevent further price erosion in an already fragile market.
China Stockpiling Offers Limited Support
Analysts note that China’s continued crude stockpiling during early 2026 may provide temporary price support. However, this factor alone may not reverse broader bearish trends. Long-term supply growth still outweighs demand expansion, keeping prices range-bound.
Outlook Remains Cautious
Energy analysts widely expect oil prices to trade within a narrow band of $60 to $65 per barrel this year. Short-term geopolitical risks continue to clash with long-term oversupply realities. As a result, volatility may remain muted unless a major supply disruption emerges. For now, oil markets appear set for a restrained and uncertain 2026.
