Oil falls to four year low as global glut deepens

Tuesday 06 January 2026 - 17:20

By: Dakir Madiha

Oil falls to four year low as global glut deepens

Oil prices have dropped to their lowest level in nearly four years, with Brent trading around 61 dollars a barrel on 6 January 2026, capping a historic slide driven by one of the largest supply surpluses in two decades. The December 2025 monthly average of 63 dollars a barrel was the weakest since early 2021, while the full year average of 69 dollars marked the lowest annual price since 2020, even after adjusting for inflation, underlining the scale and persistence of the downturn.

The sharp decline stems from a sustained oversupply that left global oil production above consumption throughout 2025, pushing inventories higher by more than 2 million barrels per day in recent quarters. Excluding the pandemic year, this is the fastest pace of stockbuild since 2000. The International Energy Agency now projects that the surplus will widen to 3.84 million barrels per day in 2026, equivalent to almost 4 percent of expected world demand, reinforcing expectations of a prolonged period of weak prices.

Supply growth from non OPEC producers has overwhelmed efforts by the OPEC plus alliance to stabilise the market. Record output in the United States, Brazil, Guyana and Canada has flooded the market despite lacklustre demand. US crude production has held above 13.8 million barrels a day, while Brazil exceeded 4.0 million barrels a day for the first time in October 2025. Guyana’s output jumped beyond 900,000 barrels per day in November, a tenfold increase since 2020, as ExxonMobil’s Yellowtail development reached full capacity. These volumes have offset voluntary curbs elsewhere and kept the supply overhang firmly in place.

Saudi Arabia has signalled growing concern by cutting official selling prices for a third consecutive month for its Asian customers. State producer Saudi Aramco reduced the price of its flagship Arab Light crude to a premium of 30 cents over the Oman Dubai benchmark for February loadings, the lowest differential since January 2021. The kingdom also lowered prices across all crude grades for every region, including the United States and Europe, in a bid to defend market share in an increasingly competitive landscape.

OPEC plus reiterated over the weekend that it will freeze any production increases until at least the first quarter of 2026. However, analysts argue that holding quotas steady will do little to resolve the underlying imbalance as non OPEC supply keeps climbing. “Even with unchanged quotas, supply is expected to exceed demand, keeping prices under pressure throughout the year,” said Bridget Payne, head of energy forecasting at Oxford Economics. Her assessment reflects a broad market view that the alliance’s current strategy is insufficient to absorb the mounting surplus.

Major Wall Street banks are bracing for continued softness. Goldman Sachs expects Brent to average 56 dollars a barrel in 2026, with West Texas Intermediate around 52 dollars, while the US Energy Information Administration forecasts Brent at 55 dollars in the first quarter and near that level for the rest of the year. Some analysts warn that prices could slip into the low 50 dollar range if the surplus persists or widens, especially if demand growth underperforms current projections.

The muted market reaction to the recent US military operation in Venezuela underlined how abundant supply has blunted traditional geopolitical risk premiums. Despite the capture of President Nicolás Maduro and the seizure of control over the world’s largest proven reserves, benchmark prices barely moved. Traders judged that any sustained increase in Venezuelan output would take years to materialise and would enter a market already awash with crude, limiting the impact on near term balances.

Slowing oil demand growth in China is adding to the bearish mood. Although the world’s largest importer is still expected by the EIA to increase consumption by 300,000 barrels per day in 2026, this represents a marked deceleration. Rising adoption of electric vehicles is eroding gasoline and diesel demand, reshaping consumption patterns in transport. Researchers at state owned CNPC now forecast that Chinese oil demand will plateau sometime between 2025 and 2030, reinforcing the view that structural headwinds are converging with cyclical oversupply to keep prices under sustained pressure.