Oil Prices Tumble to Lowest Levels Since 2021. Here Are the Big Concerns.

The global crude benchmark has traded near the lowest levels since May. (Courtesy Devon Energy)

Key Points

• Crude oil prices are at nearly five-year lows due to cease-fire hopes, record US production, and falling Chinese demand.
• Brent crude fell below $60 a barrel, and WTI is nearing $55, both down over 22% in the past six months.
• U.S. oil production reached a record 13.8 million barrels per day in September, contributing to a projected 4 million barrel per day global surplus next year.

Both West Texas Intermediate crude and the key benchmark for international oil prices are in position to close at the lowest levels in nearly five years. Renewed hopes for a cease-fire between Russia and Ukraine, record domestic production, and plunging demand in China continue to weigh on markets.

Crude prices have fallen more than 22% over the past six months. Brent crude , the global benchmark, has fallen below $60 a barrel as Chinese demand continues to wane amid Beijing’s broader economic malaise. WTI is nearing the $55 mark, a level last seen at the tail end of the pandemic.

Created with Highcharts 9.0.1Source: FactSetNote: continuous crude futures contractsAs of Dec. 17, 3:32 p.m. ET

Created with Highcharts 9.0.1Brent WTI2021'22'23'24'25405060708090100110120$130

U.S. production rates, meanwhile, have been soaring, and hit a record 13.8 million barrels per day equivalent (bpde) in September, according to delayed data from the Energy Information Administration published late last month. The OPEC cartel, as well as nonmember allies such as Russia, also have been increasing collective production since April. They agreed last month to boost output in December by 137,000 bpde.

The International Energy Agency, in fact, forecasts a record global surplus of more than 4 million barrels a day next year.

“The sense that the market is well supplied, at least in the near term, continues to outweigh episodic geopolitical risk premiums,” said Ole Hansen, head of commodity strategy at Saxo Bank. “Venezuela and Russian supply remain key wild cards that could suffer further disruptions amid sanctions enforcement and tanker seizures.”

Brent futures for February delivery were down 2.9% at $58,81 a barrel early Tuesday. A close at current levels would mark the lowest settlement since February 2021.

WTI futures for January delivery, which are tightly linked to U.S. gasoline prices, fell 3% to $55.08 a barrel. That pegs the contract at the lowest since early 2021. The State Street Energy Select Sector SPDR exchange-traded fund was off 2.4% in early trading, outpacing the 0.4% loss in the S&P 500 .

Warren Patterson, head of commodities strategy at ING, said he thinks traders will continue to monitor talks between Russia and Ukraine, brokered by the U.S., that could lead to a cease-fire in the nearly four-year-old conflict. A deal could potentially lead to the lifting of restrictions on the flow of Russian crude.

“Oil markets will be watching developments closely, given the significant supply risk from sanctions on Russia,” he said.

“While Russian seaborne oil exports have held up well since the imposition of sanctions on Rosneft and Lukoil, this oil is still struggling to find buyers,” Patterson added. “The result is a growing volume of Russian oil at sea.”

In the U.S., the supply boost has pushed gas prices firmly below $3 a gallon, according to data from the consumer advocacy group GasBuddy, Christmas Day prices are forecast to be $2.79, the lowest since 2020. The difference compared with last year’s levels amounts to around $521 million in savings for the week, GasBuddy estimated.

“Christmas is often when gas prices settle near the lowest levels of the year, and 2025 is no exception,” said Patrick De Haan, head of petroleum analysis at GasBuddy. “Refinery maintenance has wrapped up, supplies are rising, and winter demand is much lower than in summer—all of which help keep a lid on prices.”

Write to Martin Baccardax at martin.baccardax@barrons.com