Oil declined for a second week as concerns over a growing glut outweighed geopolitical risks to supply.
West Texas Intermediate gained 0.9% to settle above $56 a barrel on Friday. Still, the US benchmark was still down over 1% in a week that saw it touch its lowest point in nearly half a decade. Prices saw some support after Ukraine hit an oil tanker connected to Russia’s shadow fleet in the Mediterranean Sea, a fresh escalation in a string of attacks on vessels aiding Moscow’s oil exports.
Despite those risks, virtually all of the world’s biggest traders see the market in a state of oversupply early next year, with industry heavyweight Trafigura Group expecting Brent in the $50s through the middle of 2026, before recovering later in the year.
Markets are positioning for that outcome, increasing their short-only positions to the highest total on record this week. Long-only positions, meanwhile, were down.
Oil has lost about a fifth this year as OPEC+ returned barrels faster than anticipated and producers elsewhere also pumped more, while demand was lackluster. Geopolitical risks, especially around Russian and Venezuelan supply, have helped temper some of the declines, though a peace deal to end Russia’s war in Ukraine could bring prices down even more by eliminating supply disruptions.
“The dominant sentiment right now is definitely a structural surplus,” said Haris Khurshid, chief investment officer at Karobaar Capital LP in Chicago. “That glut mindset is outweighing geopolitical flare-ups from Russia to Venezuela.”
Oil trading activity is thin heading into the Christmas and New Year holidays, which could lead to choppy price moves. And the unusually bearish positioning could have helped push prices up some on Friday, with traders amplifying price moves as they sought to cover their short positions.
Prices:
WTI for February rose 0.9% to settle at $56.52 a barrel in New York. January futures expire Friday.
Brent for February was up 1.1% to settle at $60.47 a barrel.
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