Why oil is on track to post its largest yearly decline since the pandemic

By Myra P. Saefong

Trump and OPEC+ have contributed to weakness in crude prices

OPEC+ is scheduled to hold its next meeting on Sunday.

The oil market started the year with a great deal of uncertainty as President Donald Trump pledged to boost U.S. crude supplies, end the Russia-Ukraine war and impose tariffs on imported goods. It's ending the year with a bit more clarity on those fronts.

Yet prices remain on track for their largest yearly loss since the pandemic, due in part to major oil producers hastening their plans to boost production.

The good news for the market is that prices may be near a short-term bottom, with the lower prices likely to boost demand and temper global production, which, in turn, would ease prospects for a record surplus in global supply next year.

"The most underappreciated concept is elasticity of demand for oil," said Andrew Meleney, portfolio manager at Infrastructure Capital Advisors. "When lower prices get passed along, we do see more consumption."

On Wednesday, U.S. benchmark West Texas Intermediate crude for January delivery (CL.1) (CLF26) settled at $58.65 a barrel on the New York Mercantile Exchange. Prices based on the front-month contract have lost 18% year to date, according to Dow Jones Market Data. Global benchmark Brent crude for January delivery (BRN00) (BRNF26) ended at $63.13 a barrel on ICE Futures Europe to stand 15% lower for the year. WTI and Brent crude futures both settled Tuesday at their lowest since Oct. 21.

Overall, the U.S. economy hasn't responded as expected to tariffs, said Michael Lynch, president of Strategic Energy & Economic Research. Inflation and unemployment are "mediocre," but the damage has been much less severe than anticipated.

Read: U.S. oil output is at a record high, putting profits for producers at risk

Still, expectations for a supply surplus in 2026 have intensified, with the International Energy Agency predicting that global oil supply will outpace demand by 4 million barrels per day next year.

Most people didn't expect to see an "accelerated" unwinding of previous OPEC+ production cuts, said Lynch. That move "seemed to fly in the face of market forecasts" but hasn't, as of yet, led to a "collapse" in oil prices, he said.

Lynch said he would consider a fall below $45 a collapse. That hasn't happened for U.S. oil prices since late 2020.

OPEC+ moves pressure prices

The main driver of the decline in oil prices this year has been the "change in pacing of OPEC+ curtailed barrels being returned to the market," said James Mick, managing director and senior portfolio manager at Tortoise Capital in Kansas City.

Eight members of the Organization of the Petroleum Exporting Countries and their allies, also known as OPEC+, unwound previous production cuts of more than 2 million barrels per day (bpd) by the end of September - much quicker than expected. The eight members, also referred to as the V8, then started in October to gradually unwind a separate batch of previous cuts totaling 1.65 million bpd.

More recently, the V8 decided in early November to boost production quotas by 137,000 barrels per day in December, then - as worries about a supply surplus have grown - said they would pause quota increases during the first three months of 2026.

"The perception is the volume being returned will inevitably lead to a supply glut, driving up inventories and driving down prices," said Mick.

On Sunday, the V8, as well as all of the OPEC+ members, are scheduled to hold meetings to review oil-market conditions and make any necessary decisions in an effort to keep the market balanced.

There are two main geopolitical things in the market that OPEC+ is watching, Mick said: The Russia-Ukraine peace talks and escalating tensions between the U.S. and Venezuela.

See: Why any U.S. military strike on Venezuela could damage America's fuel supply and the global oil market

OPEC+ would likely want to see how either, or both, of those play out before making any real production decisions, Mick said.

So the most likely outcome Sunday is for the group of major oil producers to wait and see what happens with Russia-Ukraine and Venezuela, he said, while keeping its planned pause on production quota increases for the first quarter.

Trump's impact

Meanwhile, from the start of his presidency, Trump has had several goals in mind that are "at odds with one another," said Alex Hodes, an energy analyst at StoneX.

"Trump wants lower gas prices and lower inflation for the consumer, while also being supportive of the U.S.'s energy dominance and maintaining production growth," he said.

Much of the price of oil, however, is "out of the president's hands - outside of enforcement of sanctions and potential kinetic military actions that could escalate supply risks," he said.

With this in mind, Hodes believes the price of oil should take a back seat, "unless we see a massive spike due to some unforeseen circumstances and gasoline prices tick up" ahead of midterm elections. Barring that, he said, he expects much of the status quo to continue.

Trump also has "more leeway to enforce sanctions more strictly as we are coming from a relatively low baseline in oil and gasoline prices," said Hodes.

Average prices for fuel at the pump this Thanksgiving were on track to match up with the year-ago price, according to GasBuddy. Adjusted for inflation, however, the forecasted average national gas price of $3.02 for Thanksgiving Day would the lowest for the holiday since the pandemic, it said.

See: Thanksgiving gas prices could be the lowest in years - if you adjust for inflation. Why households are still on edge.

Oil and the economy

Taking a look at the bigger picture for oil, Hodes said that "supply growth has really been the story of the oil market in 2025" - not an outright weak global economy.

He said U.S. demand for petroleum products has been almost steady year over year. "So while there is not a large amount of growth, there has not been a fall in demand."

The four-week average of total petroleum products supplied, which is a proxy for demand, was at 20.381 million bpd for the week ended Nov. 21, compared to the four-week average of 20.291 million bpd for the same week a year ago, according to a report from the Energy Information Administration released Wednesday.

StoneX forecasts an average U.S. oil price of $58 a barrel in the fourth quarter, with a decline to $55 in the first quarter of 2026, "if the status quo remains," said Hodes.

That's a "big if," he added. Risks to that forecast include the possibility that OPEC changes course on production or China buys more oil at these lower price levels, Hodes said.

Prices typically dip into the winter, he said, as some demand dries up, but then reverses course when we see a large increase in heating demand and potential "freeze offs" - when cold weather disrupts crude-oil production - which can happen around January.

-Myra P. Saefong

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11-28-25 0800ET