The Week in Oil: Oversupply, Ukraine Talks Drag Down Prices

By Giulia Petroni

Here's a look at what happened in oil markets in the week of Dec. 8-12 and what the focus will be in the days to come.

OVERVIEW: Oil prices are on track for a significant weekly loss as an overall bearish supply outlook offsets persistent geopolitical concerns. In afternoon trading in Europe, Brent crude was just under $60 a barrel, while West Texas Intermediate was at $57 a barrel. The benchmarks were down more than 4% on the week.

MACRO: Energy prices got a boost from the Federal Reserve's decision to cut interest rates this week, even though it was already largely priced in by investors amid widespread concerns about labor market weakness. A lower-interest-rate environment typically boosts economic activity, supporting demand for commodities.

Traders now hope for further easing next year.

"Although there are signs of a pause at the next meeting in January, the door remains open for further interest rate cuts after that," analysts at Commerzbank said. "We expect more significant interest-rate cuts than the market, especially after Powell's successor as Fed chair takes office in May."

GEOPOLITICAL RISKS: Geopolitics dominated market sentiment this week as traders closely monitored diplomatic efforts to end the war in Ukraine and with tensions escalating between the U.S. and Venezuela.

A Ukraine-Russia deal would likely prompt the U.S. to lift sanctions on Russian oil, removing a key market concern and easing the geopolitical risk premium. Meanwhile, the U.S. announced new sanctions related to Venezuela and seized a tanker off the country's coast, raising supply risks in the region and limiting further price losses.

SUPPLY AND DEMAND: The prospect of excess supply continues to hang over the market heading into 2026, with the key question now centered on the scale of the potential oversupply.

Global oil inventories surged to four-year highs in October, while oil in transit or stored on water also saw a notable increase as sanctioned barrels struggled to find buyers.

However, Brent's forward curve isn't yet supporting the carry trade required to remove crude from the market and into profitable storage plays for some time, Saxo Bank analysts said.

The carry trade--which occurs when traders buy physical crude, store it, and sell it forward at a higher price for delivery in the future--is only attractive when the futures curve is in contango, meaning future prices are significantly higher than spot prices.

OPEC's supply and demand forecasts now point to a relatively balanced market next year, in a sharp reversal from outlooks earlier this year that indicated tighter conditions. The International Energy Agency's projected surplus has narrowed, but the agency said it still expects a large supply overhang to cloud the outlook.

This prospect has contributed to oil prices losing nearly 20% so far this year.

"The end of the year is approaching, and it is becoming apparent that most energy prices will end the year with significant discounts," Commerzbank analysts said, noting that a barrel of Brent crude oil currently costs more than $10 less than at the beginning of the year.

WHAT'S AHEAD: Traders will continue to watch developments in Venezuela and Ukraine closely, as both remain key wildcards with potential to disrupt global supply. Meanwhile, China's crude oil processing figures are set to be published early next week.

On the economic front, a slate of Federal Reserve officials are set to speak following the central bank's rate cut.

Investors will also be watching for the delayed November jobs report and CPI data for further cues on labor-market conditions and inflation trends. The University of Michigan is scheduled to release its final December consumer-sentiment reading on Friday.

Write to Giulia Petroni at giulia.petroni@wsj.com

(END) Dow Jones Newswires

December 12, 2025 11:25 ET (16:25 GMT)