Oil markets are experiencing their steepest decline since the Covid pandemic, with prices plunging nearly 20% in 2025, marking the largest annual loss since 2020. This continuous decline indicates troubling times, as it is the first instance of the oil market facing three consecutive years of losses.
Analysts attribute this downward trend to an oversupply in the oil market, even amidst ongoing geopolitical conflicts in critical energy-producing areas. Recently, crude oil prices dipped below $60 a barrel for the first time in almost five years, driven by emerging diplomatic efforts towards a peace agreement in the Russia-Ukraine conflict, which could further exacerbate the global oil surplus if Western sanctions against Russian exports are lifted.
The International Energy Agency (IEA) predicts a supply-demand imbalance of approximately 3.8 million barrels per day this year. This prediction comes despite OPEC’s recent decision to suspend any increase in production until after the first quarter, as the cartel typically seeks to balance output to maintain prices at a healthy level for both producers and consumers.
At the close of 2025, Brent crude settled at $60.85 a barrel, down significantly from nearly $74 a barrel at the end of the previous year. The US benchmark also saw a similar decline, falling to $57.42 from about $74 a year earlier. Contributing factors to this oversupply include weaker-than-anticipated economic growth in major economies and demand suppression following trade tensions, notably the US-China trade war.
Looking ahead, analysts suggest that oil producers will continue pumping excess crude, which could aggregate pressures on prices, with predictions suggesting that they may fall to as low as $55 a barrel by spring 2026. Some commodities strategists at financial institutions like BNP Paribas, JPMorgan Chase, and Goldman Sachs anticipate Brent prices slipping into the $50 range within the next year.
On a positive note, the falling oil prices may offer some relief to consumers by potentially lowering retail fuel costs and easing inflation pressures. Motorist and consumer advocacy groups are urging fuel retailers to reduce prices at the pumps in response to the recent decline in oil prices below $60 a barrel. However, despite these drops, retail prices for petrol and diesel have remained stubbornly high.
In the UK, households are preparing for higher gas and electricity costs as the energy regulator, Ofgem, announced an unexpected increase in the cap on energy prices starting this month. The cap will rise by 0.2% from January to March, pushing the average annual dual-fuel energy bill up by £3 to £1,758. This situation underscores the complexities facing consumers amid fluctuating energy prices and the ongoing economic challenges.