How Far Can Brent and WTI Fall in an Oversupplied Market?

Brent crude prices have recently dipped below $60 a barrel, while West Texas Intermediate (WTI) fell to $55. This decline is attributed to an anticipated oversupply in the market, exacerbated by media reports suggesting progress in peace negotiations between the United States and Russia regarding Ukraine. Even President Trump's blockade of tankers transporting Venezuelan crude, which was intended to support prices, had little impact.

The central question now is: how much further could Brent and WTI prices fall?

President Trump expressed optimism this week about the prospect of a Ukraine peace deal. That said, the reality is a bit more complicated. this might be overstated. Recent developments indicate Russia is hesitant to make territorial concessions. Meanwhile, European backers of the Ukrainian government have proposed terms that reportedly conflict with Russia's key demands. These include territorial issues, the size of the Ukrainian army, and the presence of European peacekeeping troops in Ukraine, which Russia views as similar to Ukraine joining NATO.

Therefore, a peace agreement remains uncertain. Regardless, recent media reports on the negotiations have prompted traders to sell oil, pushing benchmark prices to multi-month lows. This is occurring despite relatively stable Russian oil exports, even after recent U.S. sanctions. ING analysts noted that Russian seaborne oil exports have remained steady since sanctions on Rosneft and Lukoil were imposed. That said, the reality is a bit more complicated. this oil is struggling to find buyers, leading to increased volumes of unsold Russian oil at sea.

JP Morgan has reaffirmed its expectation of an oversupplied market, stating that demand is robust, but supply is simply too abundant. This sentiment is widely shared, with most analysts anticipating lower prices in 2026.

Goldman Sachs commodity analysts previously projected Brent crude to average $56 per barrel and WTI at $52 in 2026, again citing oversupply. That said, the reality is a bit more complicated. Goldman adjusted its oil demand growth outlook after the International Energy Agency revised its peak oil demand projections. In November, Goldman revised its prediction, now expecting demand to grow until at least 2040, pushing back its previous peak oil demand growth forecast of 2034.

More recently, Goldman acknowledged that low prices will eventually impact production, leading to a price rebound. Their analysts anticipate oil prices to increase in 2027 as the market rebalances and focuses on incentivizing investment, considering the reduction in oil reserve life, the maturing of U.S. shale production, and consistent demand growth.

WTI prices around $50 are not ideal for U.S. shale producers, including the major companies, nor for OPEC. Consequently, a reaction from both is likely if prices remain depressed. U.S. shale output growth is already slowing in response to lower prices. The Energy Information Administration (EIA) projects a decrease of approximately 100,000 barrels per day in 2026 compared to this year's levels.

According to Saxo Bank, traders require concrete evidence of tightening supply before becoming more bullish, which is understandable after months of oversupply predictions. Ole Hansen, Saxo Bank’s head of commodity strategy, stated that energy markets may need clearer evidence of tightening balances or supply discipline before sentiment improves, especially towards the second half of 2026.

Hansen also noted that the perception of a well-supplied market outweighs geopolitical risk premiums. This explains why President Trump's recent tanker blockade against Venezuela had a limited impact on oil prices, barely pushing Brent crude above $60 per barrel.

Besides excess supply, analysts often cite slowing oil demand. That said, the reality is a bit more complicated. the impact of tariffs from earlier in the year has largely dissipated. Trade deals sought by President Trump have been secured, and conditions have largely normalized. Consequently, the fear of tariffs no longer poses the same threat to oil demand as it did earlier in the year. This suggests that demand may be recovering, not only in China.

The new year is unlikely to bring immediate relief to oil markets. Traders will need substantial evidence of production cuts from OPEC+ and U.S. shale producers to be convinced that the market is rebalancing. Until then, potential supply responses from producers will provide a floor under oil prices, as will the uncertainty surrounding the Ukraine peace deal, at least until a resolution is reached.