SunSirs: Crude Oil Prices Plunge for Several Consecutive Days

On the evening of December 16, international crude oil prices experienced a sharp decline: WTI crude futures broke below the key $55 per barrel threshold, while Brent crude futures simultaneously fell below the $60 per barrel defense line. Domestically, SC crude futures also dropped to around 420 RMB per barrel, hitting a new low for the year. By the close of trading, WTI crude futures for January 2026 delivery fell $1.55 to settle at $55.27 per barrel, a 2.73% decline; February Brent crude futures dropped $1.64 to settle at $58.92 per barrel, down 2.71%; SC crude futures closed down at 422.5 RMB per barrel.

This wave of collective “breakdowns” caught many market participants off guard.

The recent sustained decline in crude futures stems from the combined effects of macroeconomic factors, fundamentals, and geopolitical tensions. First, weakening macro conditions coupled with tightening liquidity have triggered a pullback in dollar-denominated assets. In his view, year-end macro markets are currently overshadowed by “tightening expectations.” Currently, international markets widely anticipate the Bank of Japan will raise interest rates by another 25 basis points on December 19. This expectation has driven significant yen appreciation, leading to signs of tightening in the long-standing USD-JPY carry trade. This has notably impacted liquidity in dollar-denominated assets, causing risk assets denominated in USD to pull back to varying degrees.

Second, geopolitical risk premiums are retreating as Russia-Ukraine talks show new progress. The geopolitical risk premium that has long supported oil prices is now gradually fading. U.S. President Trump recently stated that after meeting with Ukrainian President Zelensky and European leaders, a peace agreement to end the Russia-Ukraine conflict is “closer than ever before.” This news directly accelerated the unwinding of geopolitical risk premiums in crude oil markets.

Third, the realization of fundamental oversupply has intensified inventory pressure. Previously elevated offshore crude inventories are gradually shifting to onshore tank storage, while weakening physical demand in the Middle East has further depressed domestic crude valuations. The near-month structure of SC crude has now inverted into contango (where forward prices exceed near-term prices), clearly reflecting market expectations of fundamental oversupply.

Yang An, Head of Energy and Chemicals at Haitong Futures, elaborated that the fourth quarter has entered the peak phase of supply surplus pressure in the crude oil market. The EIA's monthly report released on December 11 provided crucial corroboration, significantly revising upward the scale of crude oil supply surplus over the past two months—exceeding 4 million barrels per day on average. This aligns perfectly with multiple high-frequency data sources indicating sustained inventory accumulation. Simultaneously, diesel crack spreads—particularly in European markets—have rapidly retreated since December, fully reversing the disruption caused by Russian sanctions and underscoring the dominance of oversupply dynamics.

More notably, the recent U.S. seizure of a tanker carrying Venezuelan crude, which effectively paralyzed Venezuelan exports, elicited an unusually muted market reaction. This precisely demonstrates that geopolitical factors are no longer sufficient to counteract the bearish pressure from oversupply.

Amid sustained market pressure, the trajectory of crude oil prices in 2026 has become a focal point for all parties. According to a synthesis of institutional views, a “bearish bias” remains the prevailing outlook, though phased opportunities may emerge.

Against the backdrop of fundamental pressures, crude oil prices are expected to shift further downward in the first half of 2026, maintaining a predominantly bearish trajectory.

This assessment aligns with forecasts from international institutions. Global commodities trading giant Trafigura Group warned that the oil market will face a “super surplus” in 2026, while institutions like Goldman Sachs predict next year's average oil price will fall below $60 per barrel.

However, the market is not entirely devoid of opportunities. The International Energy Agency (IEA) noted that in the medium to long term, the surge in electricity demand driven by artificial intelligence development could introduce new variables to the energy market. Whether oil prices can bottom out and rebound will require continued attention to EIA inventory data, the implementation of the Bank of Japan's policies, and progress in Russia-Ukraine peace talks.

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