Topic 4: CRUDE

Crude oil prices weakened further in December 2025, extending a year of pronounced declines as oversupply concerns and soft global demand continued to dominate market sentiment. West Texas Intermediate (WTI) crude opened the month near USD 59.5 per barrel and drifted steadily lower, falling into the high-USD 50s by mid-December and ending the month in the USD 56.5–57.9 range, before slipping to around USD 57.3 in early January 2026. On a monthly basis, WTI lost roughly 2–3%, capping a full-year decline of more than 20% from highs above USD 80 seen earlier in 2025. Brent crude followed a similar trajectory, easing from early-December averages near USD 61–62 per barrel to around USD 60.7 by end-month, down just over 3% in December and marking its fifth consecutive monthly fall. Although intra-month volatility remained elevated, with sharp swings driven by inventory data and geopolitical headlines, the broader trend was decisively downward asmarkets increasingly priced in a sizeable supply surplus for 2026.
The primary driver of December’s weakness was persistent oversupply. OPEC+ producers, including Russia, continued to pump at elevated levels despite nominal quotas, while non-OPEC supply—particularly from the US—remained resilient. Even when US crude inventories showed occasional draws, such as a roughly 4.8 million barrel decline reported mid-month, product inventories told a different story: gasoline and diesel stocks continued to build, signalling weak refining margins and subdued end-user demand. This reinforced the view that supply was outpacing consumption, limiting the market’s ability to sustain any meaningful rebound. On the demand side, global consumption growth disappointed. Manufacturing activity in major economies, including China and parts of Asia, remained sluggish, freight volumes softened, and industrial energy usage stayed muted, outweighing seasonal or festive demand. Forward-looking forecasts increasingly pointed to a structural glut in 2026, as non-OPEC supply growth was expected to exceed incremental demand even under optimistic growth assumptions.
Geopolitical risks, which had supported prices earlier in the year, proved insufficient to offset these fundamentals. While ongoing Russia–Ukraine tensions, sporadic attacks on energy infrastructure, and uncertainty around sanctions on producers like Venezuela injected brief risk premiums into prices, these moves were short-lived. Markets increasingly judged that geopolitical developments were unlikely to result in sustained, large-scale supply disruptions, especially with diplomatic channels open and spare capacity available elsewhere. At the same time, macroeconomic conditions added another layer of caution. A firm US dollar, with the dollar index holding above 108, made oil more expensive for non-US consumers, while lingering hawkishness from the US Federal Reserve and concerns about a global growth slowdown capped investor appetite for commodities
For India, the December decline in crude prices was broadly constructive. Brent crude around USD 60–61 per barrel helped contain the oil import bill, supported the current account, and eased inflationary pressures despite higher import volumes. Lower energy costs also reduced fiscal stress linked to fuel subsidies and input costs for downstream industries. However, the underlying reason for lower prices—weak global demand—also carried negative implications, particularly for India’s export outlook and global trade momentum. Overall, December 2025 reinforced the view that oil markets were transitioning into a lower-price regime, with prices likely to remain range-bound in the USD 55–75 per barrel zone into 2026 unless disrupted by a major supply shock or an unexpectedly strong rebound in global growth.