Oil Slides to Seven-Week Low as Supply Glut Overshadows Global Support Factors

Oil prices fell sharply on Thursday as the market grappled with mounting concerns over abundant global supply, sending crude to its lowest level in nearly two months. West Texas Intermediate (WTI) for January delivery dropped 1.4%, while gasoline futures slid 1.2%, with gasoline prices sinking to their weakest point in almost five years. The decline came as worries about oversupply intensified and a weaker performance in equity markets dampened optimism for economic growth, softening expectations for energy demand.

Market pressure has been building around several key elements, most notably the growing surplus of oil worldwide. Major commodity trader Trafigura warned that the global oil market could face “extreme oversupply” next year as rising production outpaces slowing demand. Refining activity has also fallen to its lowest level in two months, a sign that the appetite for refined products is weakening.

Additional downward pressure came from a decision by Saudi Arabia to cut the official selling price of its crude to Asian buyers by 30 cents per barrel for January, the lowest level since early 2021. The move underscored soft demand in a region that typically anchors global consumption.

However, not all forces were working against crude. The weaker U.S. dollar, which recently hit a six-week low, made dollar-priced oil more attractive to international buyers, offering some support to prices. At the same time, geopolitical risks loom large, potentially limiting supply disruptions and adding upward pressure in the short term. Tensions in Venezuela escalated after the United States intercepted a sanctioned oil tanker, raising expectations of further actions that could curb the country’s exports. Ukrainian strikes on Russian oil facilities—targeting 28 refineries in the past three months—have also pushed Russia’s oil exports to their lowest level in more than three years.

OPEC+ reinforced its commitment to halting production increases in the first quarter of 2026, following a December rise of 137,000 barrels per day. Yet the broader supply outlook remains heavy. The International Energy Agency expects global oversupply to reach a record 4 million barrels per day in 2026, while the U.S. Energy Information Administration has raised its 2025 U.S. output forecast to 13.59 million barrels per day.

Even so, recent data shows U.S. inventories of crude, gasoline, and diesel remain below their five-year averages, providing a modest cushion for prices.

Overall, the oil market stands at a crossroads—pressed by forecasts of abundant supply and weakening demand, yet partially supported by geopolitical risks and strategic production decisions. Traders now look ahead to shifts in global output, economic trends, and monetary policy to determine the direction of oil prices in the weeks ahead.