Oil into 2026: calm on the screen, turbulence beneath

Crude prices spent most of 2025 doing something that looks like stability, but doesn’t feel like it. Benchmark Brent averaged about $11/barrel below 2024 levels and has been herded into an ever-tighter range over the past couple of months. On the surface, that suggests a market that has found equilibrium. In reality, it reflects an uneasy stalemate between a growing perception of oversupply and a thick layer of geopolitical uncertainty - above all, around the war in Ukraine that now looks set to spill over into 2026.

The dominant geopolitical story for oil this year was the Ukraine conflict and the constantly shifting fate of sanctioned Russian barrels. Just as flows of Russian crude and refined products appeared to have stabilised, the late-October US-EU sanctions package - especially Washington’s surprise move to sanction Rosneft and Lukoil - injected a fresh dose of uncertainty, particularly for the biggest buyers in Asia. 

Alternatives and evolving market dynamics

China and India have since pared back Russian crude purchases and scrambled for replacement barrels from the Middle East and other suppliers. The next move is a wait-and-watch game. The key questions are how strictly the new measures will be enforced, especially while US-led peace efforts are still grinding on, and how far banks, insurers and shipowners will go in tightening their own risk filters. Russian crude discounts have widened, but for many refiners in China and India, those barrels have become something of a “sour grape” - tempting on paper, but untouchable unless cargoes can be fully vetted as compliant with the latest sanctions.

Another question that looms ever larger in trading and investment discussions is what a post-deal market might look like. If there is eventually a peace agreement and sanctions are phased out, how will the destinations, volumes and pricing of Russian exports be reshuffled? The answers will shape not just Russian netbacks but also differentials for competing sour grades from the Middle East and the Atlantic Basin. Freight has become a critical part of that equation. The surge in tanker rates in recent months has offset some of the benefit of lower crude prices for importers. The combination of longer voyages, ship-to-ship transfers, idling of vessels while cargoes are vetted, and circuitous routing to avoid detection has sucked up tonnage and inflated costs.

Many market participants are now asking what happens to shipping if a peace deal leads to the lifting of sanctions and the price cap on Russian oil. If a large chunk of today’s “shadow fleet” is regularised and the inefficiencies in seaborne trade are removed, more capacity could be freed up, potentially easing freight rates - but not necessarily overnight.

Supply and demand

On the products side, Ukraine’s campaign of drone strikes on Russian refineries has disrupted products supply. The attacks were a key factor behind a spike in gasoil prices and margins in recent weeks and have kept refiners globally on their toes. Russia exports around 2.2 million b/d of refined products, with diesel accounting for nearly half the volume. 

Any peace agreement that halts the onslaught on refineries is likely to see Russian throughput and product exports stabilise, easing at least one source of volatility in cracks. But that would not be a straightforward bearish development: a more stable Russian refining system may mean slightly lower crude exports and somewhat higher products exports, but the net contribution to total liquids supply would be broadly unchanged.

That points to a crucial, and sometimes overlooked, point for 2026. The eventual reintegration of Russia into the global market “fold” will not deliver a step-change increase in global supply. Russia has been producing close to its OPEC+ target and will continue to be guided by those quotas in 2026. A peace deal may alter trade routes, freight dynamics and product slates, but not the headline production number.

The real swing on the supply side next year is more likely to come from the OPEC/non-OPEC Group of Eight resuming the unwinding of the remainder of its 1.65 million b/d of voluntary cuts after the pause in Q1. However, the bulk of the phaseout of OPEC+ cuts – roughly 2.9 million b/d between April and December this year – is already in the market and largely priced in. From here, we are arguing about the last increments rather than a new wave of supply.

Balance and lessons for 2026

Against this backdrop, the debate over 2026 balances is unusually wide. The IEA projects an unprecedented 4 million b/d average surplus, implying the potential for downward pressure on prices. The US EIA is more moderate at 2.2 million b/d, while OPEC - which does not formally publish balances - clearly envisages something closer to a broadly aligned market. The gap between these outlooks is large enough to matter for investment decisions, hedging strategies and budget planning.

Once the Ukraine question is eventually resolved, the market will still be left grappling with fundamental uncertainties: how quickly demand growth slows as post-pandemic momentum fades, whether China can avoid a deeper slowdown, and how high interest rates and rising debt burdens in advanced economies feed through to consumption and investment.

In that sense, 2025 may prove to have been a dress rehearsal for 2026: prices apparently calm but masking competing narratives of glut and risk. The war in Ukraine and the fate of Russian barrels will continue to set the tone – either by prolonging today’s uneasy status quo, or, if a breakthrough comes, by forcing the market to rapidly rebuild its base case for trade flows, freight and refining margins.

For industry players, the lesson is that “rangebound” should not be confused with “boring”. Oil is likely to remain a market where certainty is scarce.