Crude oil prices were poised for weekly gains on Friday, with West Texas Intermediate (WTI) trading near $59.50 per barrel. However, analysts caution that the short-term outlook remains highly uncertain as the market swings between bearish supply fundamentals and bullish geopolitical risks.
Despite the latest rebound, oil has lost nearly 16% of its value year-to-date, reflecting persistent downward pressure on prices.
Supply-Demand Imbalance Weighs on Prices
The biggest drag on crude continues to be the widening supply glut. The global surplus has expanded from 0.5 mbpd to nearly 1.5 mbpd over the past six months, signalling excess supply relative to demand.
- Weak demand outlook: Growth in oil consumption remains sluggish in advanced economies. While demand in non-OECD regions โ especially India โ is steady, it is not strong enough to offset global softness. Indiaโs oil demand is projected to rise to 6 mbpd by 2026 from roughly 5.2 mbpd currently.
- Rising supply: Non-OPEC+ production, led by the United States, is increasing sharply. At the same time, the OPEC+ alliance has indicated a gradual reversal of voluntary production cuts, likely adding more barrels to an oversupplied market.
- Forecasts turn bearish: The U.S. Energy Information Administration (EIA) expects Brent crude to average $54 per barrel in Q1 2026, while the International Energy Agency (IEA) anticipates the surplus to exceed 3 mbpd by the end of 2026.
- Inventories swelling: Observed global inventories, particularly โoil on water,โ have risen in recent months. U.S. commercial inventories have shown mixed trends but remain 3% below the 5-year average.
Geopolitics and Technicals Support Short-Term Volatility
While fundamentals are bearish, geopolitical tensions and market sentiment continue to inject volatility.
- Global conflict risks: Drone strikes on Russian refining infrastructure have disabled around 20% of refining capacity, creating product supply concerns in Russia and the Black Sea.
- U.S.โVenezuela tensions: Heightened military and airspace activity has raised fears over possible disruptions to Venezuelan oil.
- Technical moves: WTI recently broke above a descending trading channel, approaching the key psychological resistance at $60 per barrel, triggering short-covering among traders.
- Seasonal trends: Winter demand for heating fuels could temporarily boost crude consumption.
Outlook
Analysts expect crude oil to remain volatile and event-driven in the near term, with geopolitical headlines and inventory releases capable of triggering sudden price swings. A potential FOMC rate cut, which could weaken the U.S. dollar, may also offer limited support to oil prices.
However, experts note that structural oversupply and weakening global demand will likely cap sustained rallies.
For WTI, immediate resistance lies near $60, while long-term support remains around $55.
