I reduced my January West Texas Intermediate oil price forecast by $2.50 per barrel: WTI prices should range between $52.50 and $62.50 per barrel. Last month, I expected WTI oil prices to remain in the high $50s or low $60s. Prices stayed predominantly in the upper $50s. With prices closing on Friday, December 26, at about $57.00 per barrel, it is not inconceivable that prices will dip below $55 during the month of January. I expect that WTI prices will range in the mid- to upper $50s throughout January.
In December, oil prices often had exaggerated moves in response to an announcement or development in the war in Ukraine or Venezuelan negotiations with the US. Otherwise, prices were relatively stable.
The overall bias appears to be bearish, though I do not share the extreme bearishness. Pundits have been warning for a long time about the tsunami of oil about to wash up on shore because of the extreme volumes of oil on water. Yet week after week, the EIA reports reasonable inventory values. Although it is not as important as it once was, the inventory levels at Cushing are low.
Let us have a look at some of the bearish commentary.
On December 9, the Financial Times published “Oil market faces ‘super glut’ as supply surge hits prices” (subscription required) where it stated:
The oil market faces a “super glut” next year as a burst of new supply collides with weakness in the global economy, one of the world’s biggest commodity traders has warned.
Saad Rahim, chief economist of Trafigura, said on Tuesday that new drilling projects and slowing demand growth were likely to weigh further on already depressed crude prices next year.
“Whether it’s a glut, or a super glut, it’s hard to get away from that,” Rahim said in remarks alongside the company’s annual results.
You can watch Trafigura’s comments on YouTube. Normally, I would embed the video, but the video owner requires viewing on YouTube itself.
On December 18, Bloomberg published “The World Is Awash With Oil and Prices Are Poised to Keep Falling” (subscription required). It stated:
Virtually all of the world’s biggest traders see the oil market in a state of oversupply early next year — the only question is by how much. The International Energy Agency estimates that output could exceed consumption by around 3.8 million barrels a day in 2026. Many traders predict smaller numbers than that, but storage levels are still expected to grow.
When that happens, oil prices usually fall. Global benchmark Brent crude is down 20% this year to trade near $60 a barrel. Trafigura, one of the world’s top commodities traders, says oil could be in the $50s through the middle of the year before recovering into the end of 2026.
“It’s a market where everybody agrees what’s going on,” Ben Luckock, global head of oil at the firm, said in an interview. “Prices should be lower, but they can’t be because there’s a war going on in Ukraine still.”
The IEA has a history of being overly bearish, so I tend to discount its forecasts. We have already discussed Trafigura. And regarding the war in Ukraine, I am not as confident that a cessation of hostilities will lead to lower oil prices on a sustained basis. Russia is already producing as much as it can. Ukraine has disabled several Russian oil refineries. When the war stops, Russia will be able to repair its refineries and produce more oil products, resulting in reduced oil exports. And with a cessation of hostilities, there will be a massive rebuilding effort underway in Ukraine and a more confident outlook in Europe generally. Decreased oil exports from Russia and increased economic activity in Ukraine and Europe may lead to a strengthening of oil prices after the initial Pavlovian reaction of lower oil prices once the fighting stops.
The article also discusses breakeven prices required by various OPEC countries to balance their budgets. Those breakeven prices are irrelevant because current supply and demand dictate oil prices. If oil is plentiful and expected to remain so, OPEC countries are not going to reduce oil production in hopes of raising prices. Cutting back oil production would simply allow others to gain market share. Instead, global supply and demand will dictate oil prices, and OPEC governments, like any other government, will need to adjust their budgets to align themselves with market realities.
Again on December 18, Eric Nuttall provided some optimism in an X post:
In his post, Nuttall seems to suggest that after 2026, the future for oil prices looks much better. I tend to agree with his assessment.
At around December 18, Paul Sankey in his Sankey Research channel on YouTube gave a great overview of the trends and developments:
Sankey was one of the more bearish voices, and I believe he is still quite bearish. I am not as bearish as him, nor am I bullish. In fairness to my comments about Sankey, I also did not think WTI prices would hit the $50s, and here we are in the $50s. In any event, Sankey’s YouTube is worth viewing.
Around December 19, Eric Nuttall provided his year-end review:
Unlike most others, Nuttall is far less bearish than others I have mentioned. He expects prices to rise through 2026. His YouTube is a must view.
Circa December 20, Bloomberg published the following YouTube “Oil Prices Poised to Keep Falling With World Awash in Supply.”
Aside from the bearish title, I did not glean much from this video. But it does show that the sentiment is extremely bearish.
On December 22, John Kemp posted on X that “investors have turned exceptionally bearish about the outlook for crude oil prices, anticipating a large accumulation of inventories next year, and shrugging off the impact of the U.S. embargo on oil exports from Venezuela.”
This extreme bearish positioning is actually bullish because most everyone who wanted to get bearish is already bearish.
At about December 23, CNBC published the following YouTube “Crude Oil Prices Fell 20% in 2025: What to Expect in 2026? | Commodity Champions.”
I did not learn much from this eleven-minute interview. The guest’s views seemed largely in line with IEA’s views.
So with all this bearish commentary, why am I not more bearish myself? Because despite all the bearish commentary of a glut of oil on water, we have not seen onshore inventories react. The EIA inventory reports show typical historical inventory numbers for this time of year. Am I bullish then because inventory numbers are reasonable and many of the pundits are bearish? No, I am neutral. While the oil markets rebalance themselves, I am expecting oil prices to remain around current levels.
Of course, significant geopolitical events can move oil prices beyond that range. A cessation of hostilities between Russia and Ukraine may temporarily depress prices, though I expect prices to bounce back once the reality of no increase of Russian oil exports sets in. Some make the argument that there is a lot of Russian oil on water, and once the sanctions are lifted, that will be a temporary release of oil to the markets. Perhaps, but even if true, it will be for a short duration only.
In summary, I expect WTI to predominantly range between $55-$60 per barrel, with $2.50 per barrel of wiggle room on either side. Despite all the bearish commentary, EIA inventory reports remain typical for this time of year.
I want to wish everyone a Happy, Healthy, and Prosperous New Year!
Disclosure: Short strangle (short calls and short puts) on WTI crude oil futures.