Oil Tumbles on Supply Glut Concerns. U.S. Gas Prices Near 5-Year Low

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

Key Points

• Global oil prices fall to their lowest levels since May, with U.S. crude testing $55 a barrel.
• Crude prices have decreased by over 22% in the past six months, pushing Brent crude below $60 a barrel due to waning demand in China.
• U.S. crude production reaches a record 13.8 million barrels per day equivalent in September, contributing to a projected 4 million barrels per day global surplus.

Global oil prices fell to the lowest levels since May on Tuesday, with U.S. crude testing $55 a barrel, as renewed hopes for a cease-fire between Russia and Ukraine, record domestic production, and plunging demand in China continue to weigh on markets around the world.

Crude prices have fallen more than 22% over the past six months, dragging Brent crude , the global benchmark, below $60 a barrel as China demand continues to wane amid Bejing’s broader economic malaise.

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 supplies since April, and agreed last month to boost production in December by 137,000 bpde.

The International Energy Agency, in fact, forecasts a record global supply 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 contract for February delivery were down 1.65% at $59.55 a barrel early Tuesday. A hold at current levels would mark the first close below $60 since May.

WTI futures for January delivery, which are tightly-linked to U.S. gas prices, fell 1.8% to $55.78 a barrel. That pegs the contract at the lowest since early 2021.

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 near four-year-old conflict and possibly lift 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 consumer advocacy GasBuddy, with Christmas Day prices forecast at $2.79, the lowest since 2020. The difference to 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.