Oil Prices Hover Near Two-Month Low Amid Supply Glut and Geopolitical Friction

Gerik

Summary:

Despite global equity market optimism following the Fed’s rate cut, oil prices remain subdued due to persistent concerns over a looming supply surplus in 2026....

Oversupply Fears Anchor Oil Prices Below $62

Crude markets are struggling to gain upward momentum even as broader financial markets rally on optimism sparked by the Federal Reserve’s interest rate cut and its confident economic outlook. Brent crude futures, the global oil benchmark, hovered just above $61 per barrel on Friday, December 12, 2025 close to their lowest levels since mid-October.

This stagnation reflects a divergence in investor sentiment: while equity markets eye new highs, oil remains bogged down by fundamentals, particularly supply dynamics. According to the International Energy Agency (IEA), global oil inventories have ballooned to a four-year high. The agency reiterated its forecast of a significant surplus in 2026, slightly trimmed from its previous estimate but still historically high.

This reinforces a bearish undertone in oil markets. Brent has been range-bound for nearly two months, fluctuating between $60 and $67, with growing downside pressure as inventories swell and demand growth lags behind expectations. Traders appear cautious, unwilling to commit to bullish oil positions despite increased risk appetite in other asset classes.

Traders Cautious Despite Risk-On Mood Elsewhere

Haris Khurshid, Chief Investment Officer at Chicago-based Karobaar Capital LP, noted that while investors are embracing risk in equities and credit, the same enthusiasm hasn’t translated to crude oil. "The fundamental surplus hasn’t gone anywhere," he said, underscoring that market technicals remain vulnerable to inventory data and production metrics.

The disconnect between energy and equity markets is especially stark now. While the S&P 500 and global equity benchmarks flirt with record highs, oil lacks a meaningful catalyst. The Fed’s rate cut may reduce borrowing costs and stimulate broader economic activity, but it has not yet translated into higher energy consumption or confidence in future oil demand.

IEA’s Surplus Warning: A Drag on Price Recovery

The IEA’s latest monthly report, released Thursday, warned of an “unprecedented surplus” next year, driven by non-OPEC production increases and softening demand from key markets, including China and the EU. Even with voluntary cuts from OPEC+ producers, the agency expects global stockpiles to continue rising, particularly in developed economies.

This forecast undermines bullish narratives tied to geopolitical tensions, reinforcing traders’ focus on fundamentals over headlines. Crude is facing headwinds from both supply-side resilience and demand-side ambiguity. With inventories at a four-year peak, there is little immediate incentive for upward price reversion, especially as winter demand remains mild in the Northern Hemisphere.

Geopolitical Flashpoints Offer Limited Support

President Trump’s recent moves against Venezuela added a flash of geopolitical drama this week. The U.S. seized a large supertanker carrying Venezuelan crude off the country’s coast and followed up with sanctions on six oil tankers and three of President Nicolás Maduro’s nephews. The Biden administration had previously taken a softer stance on Venezuela’s oil exports, but Trump’s return to a “maximum pressure” doctrine appears aimed at cutting off Maduro’s oil revenues.

While such measures often tighten supply in specific grades or markets, analysts note that Venezuela’s overall export capacity is limited and unlikely to meaningfully impact global balances. Unless tensions escalate further or disruptions hit a major producer like Iran or Russia geopolitical events may only offer brief price support.

Oil’s Fragile Balance Going Into 2026

Looking ahead, oil prices are likely to remain under pressure as traders weigh macroeconomic optimism against a stubborn supply glut. Unless demand indicators improve meaningfully or major producers take deeper cuts, Brent may test the psychological $60 floor in coming weeks.

Market watchers are increasingly concerned that crude’s underperformance could signal broader doubts about industrial demand strength, particularly if China’s recovery falters or European energy use remains weak. For now, oil bulls will have to wait for either a geopolitical jolt or a concrete shift in global consumption patterns to break free from this bearish range.

Source: Bloomberg

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