With temperatures dropping and heat - or the lack of it - becoming a pressing priority for many in the Northern Hemisphere, it's unsurprising that the fuel market is piquing investors' interest. After hitting unprecedentedly high prices above $100 a barrel, oil has been trending steadily down for the past three years now. In fact, over the past year alone, Brent has slipped from an average price of around $85 a barrel in January 2025 to a mere $64.387 as of 30 October.
Historically, this is fairly close to the ten-year average, and there could be an argument for a natural correction after the dizzying heights of the summer of 2022. However, the world is still in geopolitical turmoil, and other real assets have inflated like crazy over the same period.
As is common in the oil market, there are significant artificial factors at play. First, we have the OPEC+ cartel steadily increasing its production levels in an effort to keep oil prices low. Then, we have the downward pressure on Urals crude brought about by the international price capping and increasing economic sanctions against its producing country, Russia. And yet natural market forces and unpredictable demand projections are keeping the market makers guessing. In this piece, we'll look at all these factors and more as we try to plot oil's movements into 2026.
Higher or lower?
Following sharp cuts made during the pandemic period, OPEC+ has been gradually increasing its output in order to replace the lost production without crashing the market. Since April 2025, the cartel has increased its target by more than 2.7 million bpd. However, this only accounts for around half the 5.85 million bpd cumulative cuts members had agreed in preceding years. Nonetheless, the added capacity has ended up generating what appears to be a severe oversupply of oil that the IEA expects to continue to the end of 2026. OPEC+ members will meet on 2 November to agree their output quota for December; Reuters predicts they'll agree to a modest increase of 137,000 barrels per day. The only member state truly capable of boosting output is Saudi Arabia, which finds itself under opposing pressure from both Russia and the US. Moscow wants a halt or even reversal in the increases to boost its trade profitability, while Washington is pushing for an even more aggressive ramp-up. Given that the Saudis are actively looking to strengthen strategic ties with the US, we would be wise to expect the output increases to at least continue at the same pace. After all, such a move is perfectly aligned with OPEC's strategy to keep oil prices low and thus price the US-based shale oil industry out of the game.
Meanwhile, the world's major oil companies have been tipped to accelerate their own production efforts in spite of weak crude prices and higher supplies from OPEC and its allies. Bloomberg analysts expect Exxon Mobil Corp., Chevron Corp., Shell Plc, BP Plc and TotalEnergies SE to increase output 3.9% this year and 4.7% in 2026. The increases, which include both new projects and acquisitions, look to exploit both projected oil-price gains in the latter half of next year.
Bending the rules
Trump made more headlines this week, this time not with tariffs but rather with sanctions, his first package levelled at Russia since taking office. Under the new move, the US will be able to pressure Rosneft and Lukoil's overseas subsidiaries and dissuade foreign partners from working with them. The two firms account for half of Russia's 9.2 million bpd produced so far this year and 47% of the country's seaborne crude oil exports of 3.5 million bpd. They are also crucial to Moscow's production, with Rosneft even exporting nearly 900,000 bpd of crude directly to China via pipeline. Following the announcement, several major buyers in India and China have suspended buying to avoid US reprisals, and state-owned Indian Oil has even requested bids for 24 million barrels of Americas-produced oil for Q1 2026.
Despite the significant blow of the sanctions, which are predicted to wipe off at least 1.5 million bpd from obedient markets, it is expected that Russian production will remain steady in the near term at least. In all likelihood, the sanctioned oil will accumulate on seaborne vessels before being absorbed by smaller Chinese refiners or other buyers willing to use so-called "shadow fleet" tankers to secretly transport the oil to their facilities. This phenomenon is a symptom of the wider fracturing of the global oil market, which will, in turn, lead to lower efficiency and higher logistics and transportation costs, in and of itself driving up the oil price. What's more, the oil demand peak continues to be pushed back, with latest estimates seeing it beyond 2030 and OPEC's projecting increased demand up through 2050. As always, the key to price action will be the balance between supply and demand. As long as appetite for oil remains strong, prices may still rise even amid growing supply.
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