Oil markets have recorded their steepest annual fall since the Covid pandemic and could be on track to plummet further as oil producers continue to pump more crude than needed by the global economy.
Oil prices slumped by almost 20% in 2025, marking the biggest annual loss since 2020 and the first time that the oil market has recorded three consecutive years of annual losses.
The steady slide in prices has emerged despite ongoing conflict in some of the world’s most important energy-producing regions due to a “cartoonishly” oversupplied market, according to analysts.
Crude fell below $60 a barrel for the first time in almost five years last month as political leaders began to inch towards a Russia-Ukraine peace deal which could increase the glut in the global market if western sanctions are lifted on Russian exports.
The International Energy Agency expects supplies to outstrip demand for crude by about 3.8m barrels a day this year, even following a recent decision by members of the Opec oil cartel to defer any increase in production until after the first quarter of the year.
Opec normally tries to manage the output of its members to keep prices within a “Goldilocks” range: high enough to guarantee them healthy revenues, but without becoming so high that consumers take up cheaper, low-carbon alternatives such as electric cars and heat pumps.
On the last day of 2025, the price of Brent crude settled at $60.85 a barrel, down sharply from almost $74 a barrel at the end of 2024. The US oil price also fell 20% last year, to $57.42 on Wednesday from about $74 a year ago.
The market is awash with more crude than global industrial activity can absorb, in part due to weaker than expected economic growth in major economies and the impact of the US president Donald Trump’s trade war against China, which has dulled demand from the world’s biggest energy importer.
Oil producers are expected to continue pumping excess barrels in the year ahead, which could lead prices to lows of $55 a barrel by the spring, according to analysts at BNP Paribas. Commodities strategists at JPMorgan Chase and Goldman Sachs also expect Brent prices to slip into the $50s a barrel in 2026.
Oil analysts at the Australian investment bank Macquarie wrote in a recent note to clients that the downward price momentum was already outstripping their weak expectations for the market, which it has previously characterised as “cartoonishly oversupplied”.
Falling prices could help hard-pressed families by leading to lower fuel prices at retail forecourts, and helping to cool inflation, which has led to higher costs across the economy.
Fuel retailers are under pressure from motoring and consumer groups to cut their pump prices after oil prices fell below $60 (£45) a barrel for the first time in almost five years last month but the price of petrol and diesel remained stubbornly high.
Households in Great Britain will also face higher gas and electricity bills from this month after the energy regulator, Ofgem, announced a surprise increse to the government’s cap on energy bills following predictions that the cap would fall. Instead, the cap will go up by 0.2% from January to March, equivalent to increasing the typical annual dual-fuel energy bill by £3 to £1,758.
