Global oil markets have endured their most severe annual price collapse since the height of the Covid-19 pandemic, with values plummeting by almost 20% throughout 2025. This represents the most significant loss for producers since 2020 and marks an unprecedented third consecutive year of annual declines for the sector.
A Market Awash with Crude
The dramatic slide occurred despite persistent conflict in key energy-producing regions, driven primarily by what analysts have labelled a "cartoonishly" oversupplied market. The International Energy Agency (IEA) forecasts that global supplies will outstrip demand by approximately 3.8 million barrels per day this year. This surplus persists even after the Opec+ cartel decided to defer any production increases until after the first quarter.
In a stark indicator of the downturn, the price of Brent crude oil fell below $60 per barrel in December for the first time in nearly five years. This drop was partly influenced by political movements towards a potential Russia-Ukraine peace deal, which could further swell global supplies if western sanctions on Russian exports are lifted.
Forecasts Point to Further Declines
As trading closed for 2025, Brent crude settled at $60.85 a barrel, a sharp fall from almost $74 at the end of 2024. The US oil price mirrored this 20% annual decline, finishing the year at $57.42. Analysts see little immediate respite.
Experts at BNP Paribas predict that continued excess production could drive prices as low as $55 per barrel by spring. Similarly, commodities strategists at JPMorgan Chase and Goldman Sachs anticipate Brent prices will slip into the $50s during 2026. The market's weakness exceeds even the pessimistic expectations of some banks, with Macquarie noting the downward momentum was outstripping their already grim forecasts.
Mixed Consequences for Households and the Economy
The price crash presents a double-edged sword for consumers. On one hand, falling wholesale oil prices should theoretically ease pressure on hard-pressed families by leading to cheaper fuel at forecourts and helping to cool persistent inflation across the economy.
However, motoring and consumer groups are currently pressuring fuel retailers to pass on the savings, as pump prices for petrol and diesel have remained stubbornly high despite the crude oil dip below $60.
Meanwhile, households in Great Britain face a separate energy cost hike. The energy regulator, Ofgem, announced a surprise 0.2% increase to the government's price cap for January to March, contrary to predictions of a fall. This raises the typical annual dual-fuel bill by £3 to £1,758.
The overarching market glut is attributed to weaker-than-expected economic growth in major economies and the dampening effect of former US President Donald Trump's trade war with China, which has curtailed demand from the world's largest energy importer. With producers expected to keep pumping excess barrels, the oil industry's period of turbulence appears far from over.
