—Crude Oil Market Review at Year-End 2025: Amidst intertwined supply glut and weak demand, oil prices recorded their worst five-year performance. U.S. crude fell below the $58 per barrel threshold, with technical indicators hinting at a potential “double bottom reversal” signal.
“Oil prices are falling faster than expected!” On the final trading day of 2025, the international crude market extended its downtrend: WTI crude initially breached the $58 per barrel mark, trading near $57.90, heading toward its fifth consecutive monthly decline. The year-to-date cumulative drop nears 20%, marking the worst annual performance since the 2020 pandemic. Behind this “plunge storm” lies a triple squeeze of oversupply, weak demand, and geopolitical risks. Yet technical indicators hint at a faint “bottom reversal” signal—can oil prices halt their decline at the critical $55 threshold in 2026?
I. The “Three Sins” of the Plunge: Oversupply, Weak Demand, and Record-High Inventories
The core logic behind oil's sustained decline lies in the fundamental imbalance of “strong supply and weak demand,” compounded by inventory accumulation and geopolitical disruptions.
1. Supply Side: “Production Race” Triggers Surplus Panic
OPEC+'s Hesitation to Boost Output Fails to Alter Oversupply Expectations: Despite plans for a January 4, 2026, video conference where OPEC+ is expected to maintain its “pause on further production increases,” the “production race” since 2025 has sown seeds of concern. Surging supply from OPEC+ and its competitors (such as U.S. shale oil) has driven continuous global crude inventory buildup.
U.S. Shale Oil “Expands Production Amid Favorable Conditions”: During periods of high oil prices, U.S. shale oil companies accelerated drilling. In 2025, U.S. crude oil production surpassed 13 million barrels per day, making it the world's largest oil producer and further intensifying supply pressure.
2. Demand Side: Global Growth Slowdown “Weighs on” Consumption
Economic Slowdown Suppresses Demand: The International Energy Agency (IEA) and other institutions forecast that global oil demand growth will slow from 1.2% in 2025 to 0.8% in 2026, primarily due to weak economic performance in Europe and the U.S. and sluggish recovery in emerging markets.
New Energy Substitution Effects Emerge: Increased electric vehicle penetration (global EV sales share reaching 25% by 2025) and growth in photovoltaic and wind power installations will weaken crude oil demand potential in the long term.
3. Inventory “Dammed Lake”: API Data Confirms Surplus Reality
U.S. Inventories Continue to Rise: The industry-backed American Petroleum Institute (API) reported a 1.7 million-barrel increase in crude inventories last week. If confirmed by Wednesday's EIA data, this would mark the largest weekly gain since mid-November. Gasoline and distillate inventories also rose simultaneously, reflecting weak downstream consumption.
Global Apparent Inventories Remain Elevated: As of December 2025, OECD crude inventories reached 2.8 billion barrels—120 million barrels above the five-year average—signaling significant oversupply pressure.
II. Geopolitical Disruptions: UAE Withdrawal, U.S. Blockade of Venezuela
Beyond supply-demand fundamentals, geopolitical risks added “uncertainty” to oil prices but failed to reverse the downtrend.
1. UAE Withdrawal from Yemen: Fissures Emerge Within OPEC
The UAE announced its withdrawal from Yemen following tensions with Saudi Arabia over military operations. As core OPEC members, their divergence may undermine the effectiveness of future production cut agreements, raising market concerns about the “OPEC+ unity” weakening.
2. U.S. “Covert Strike” Against Venezuela: Sanctions Escalation Fuels Supply Fears
The Trump administration disclosed a covert strike on a Venezuelan “drug trafficking facility,” sparking market speculation about further U.S. blockades on Venezuelan crude shipments. While this may reduce short-term supply, the long-term global oversupply pattern remains unchanged.
III. Technical Indicators Hint at Hidden Opportunities: Double Bottom Reversal Pattern Emerges, $55 Becomes Key Support Level
Despite mounting bearish fundamentals, technical analysis suggests oil prices may be nearing a “temporary bottom.”
1. Descending Channel Constraint: $60 Hurdle Remains a “Curse”
Since its 2022 peak, oil prices have remained within a descending channel. The secondary channel formed by the September 2023 high further capped prices below $60. The current price of $57.90 approaches the channel's lower boundary, indicating persistent near-term downward pressure.
2. Double Bottom Reversal Signal: $55 and $49 Become “Lifeline” Support Levels
Short-term support at $55: A decisive break below $55 would trigger technical selling pressure, targeting $49 (lower boundary of the two-year channel). However, stabilization near $55 could form a “double bottom reversal” pattern.
Key resistance at $62.60: A weekly close above $62.60 could open upside potential toward $66.40-$68, signaling a long-term trend reversal.
IV. 2026 Outlook: Short-Term Pressure, Potential Long-Term “Bottom Bounce”
Despite persistent oversupply pressures at the start of 2026, long-term supportive factors are gradually emerging, potentially leading to a “dip before a rise” market turnaround.
1. Short Term (1-3 Months): Volatile Bottom-Finding, Focus on $55 Support
Bearish Factors Dominate:
- OPEC+ maintaining production freeze unlikely to alter surplus dynamics;
- U.S. shale oil output remains elevated; Global economic recovery remains sluggish, suppressing demand.
Emerging bullish factors: Geopolitical conflicts (e.g., escalation in the Middle East) may trigger short-term rebounds; Seasonal uptick in U.S. winter heating demand.
2. Medium-to-Long Term (6-12 months): Supply-demand rebalancing, oil prices may rebound to $65-$70
Supply contraction: High-cost fields (e.g., Canadian oil sands) cut production due to losses; OPEC+ may initiate “gradual production cuts” in the second half of 2026.
Demand recovery: China's intensified economic stabilization policies and the diminishing substitution effect from new energy vehicles may boost crude demand.
Technical reversal: If the $55 support holds, confirmation of a double-bottom pattern could trigger a rebound targeting $65-$70.
[Conclusion: Oil's “Endless Plunge” Will Find a Bottom; 2026 May See “Bottom-Bounce”
Oil's “plunge” in 2025 resulted from the ‘resonance’ of oversupply, weak demand, and inventory buildup. However, the technical “double-bottom reversal” signal and long-term expectations for supply-demand rebalancing leave hope for a “bottom-bounce” in 2026. As one crude analyst noted: “Oil prices won't fall forever. When excess capacity is cleared and demand recovers, a rebound is only a matter of time.”
For investors, short-term caution is warranted regarding the “breakdown risk” at the $55 threshold. However, medium-to-long-term opportunities exist in “low-valuation + high-elasticity” oil and gas stocks. Looking ahead to 2026, let us patiently await oil prices finding “renewed life” amidst their “volatile journey.”
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