Oil prices began 2026 on a cautious note, slipping lower on the first trading day of the year as investors weighed fresh geopolitical risks against a far more dominant concern: too much oil, and not enough demand.
The muted start comes after a bruising 2025, when crude prices suffered their worst annual performance in six years.
Brent crude, the benchmark for roughly two-thirds of the world’s oil, fell 0.66% to $60.45 a barrel by late afternoon in the UAE. U.S. benchmark West Texas Intermediate declined 0.64% to $57.05 a barrel. On a week-on-week basis, both benchmarks were marginally higher, but for all of 2025, Brent and WTI posted losses of nearly 20%.
Geopolitics Return but Fail to Lift Prices
Geopolitical tensions resurfaced immediately in the new year, but failed to deliver their usual price boost.
Russia and Ukraine, still locked in war despite U.S.-brokered peace talks, accused each other of drone strikes on New Year’s Day. While such developments would typically support oil prices, expectations that negotiations could eventually produce a deal have capped upside, keeping risk premiums subdued.
At the same time, Washington escalated pressure on Venezuela, imposing sanctions on the country’s arms trade after accusing Caracas of aiding narcotics trafficking. The U.S. military also carried out strikes on alleged drug-smuggling boats in the Pacific as part of a broader regional campaign.
Despite the tension, markets remained focused on fundamentals rather than headlines.
Venezuela’s Oil Still Flowing But Mostly to Asia
Venezuela, which holds the world’s largest proven oil reserves, continues to produce around 1.1 million barrels per day, according to analysis from Rystad Energy. The bulk of that crude is exported to China and India, limiting the immediate impact of U.S. sanctions on global supply.
Still, combined with slowing economic growth and swelling inventories elsewhere, these geopolitical flashpoints have done little to prevent oil prices from sliding to their lowest levels since 2020.
The Bigger Problem: A Growing Supply Glut
The dominant force shaping oil markets in 2026 is not war, it’s oversupply.
Concerns about a looming glut have intensified as major producers prioritize output. The OPEC+ alliance, led by Saudi Arabia and Russia, began restoring supply in April 2025 in an effort to reclaim market share lost during years of production cuts. However, the group has paused further increases for the first quarter of 2026, citing weak seasonal demand.
Even so, the numbers remain daunting.
The International Energy Agency forecasts that global oil supply will exceed demand by 3.85 million barrels per day in 2026, which is nearly 4% of total global consumption. That imbalance threatens to weigh heavily on prices unless production discipline tightens significantly.
Structural Pressure on Prices And on Oil Producers
Analysts warn that Brent crude is now under sustained pressure, having slipped below the psychologically important $60-a-barrel level. With supply growth running at roughly three times the pace of demand growth, many expect weakness to persist.
This dynamic is set to intensify fiscal pressure on oil-dependent economies, particularly in the Gulf, where government budgets remain closely tied to energy revenues. It is also sharpening scrutiny of OPEC+’s strategy of restoring output to defend market share, even as global consumption continues to grow at a slower, steadier pace.
A Fragile Start to the Year
As 2026 begins, oil markets are caught between two powerful forces: geopolitical instability that once guaranteed higher prices, and a structural oversupply that is proving far harder to ignore.
For now, traders appear to have made their choice. Unless demand surprises to the upside or producers pull back more aggressively, crude prices may remain under pressure, marking a challenging start to the year for energy markets and oil-exporting nations alike.
