Oil Prices Edge Higher Amid Geopolitical Tensions Despite Historic Annual Decline

By Roger A. Agana 

December 29, 2025

Oil prices gained modest ground Monday, offering brief relief in what has become a difficult year for global energy markets, though the commodity remains on track for its steepest annual decline since 2020.

Brent crude rose to $61.92 per barrel on December 29, climbing 2.11 percent from the previous session. West Texas Intermediate (WTI) advanced to $58.02 per barrel, up 2.25 percent. The gains followed a more than two percent decline in the prior session during thin post-Christmas trading.

Despite Monday’s uptick, the broader picture reveals significant weakness in oil markets. Over the past month, Brent prices have fallen nearly two percent, while crude has declined 2.2 percent. Compared to the same period last year, Brent has dropped more than 16 percent, with WTI down approximately 18 percent.

The modest rally stemmed primarily from heightened geopolitical tensions in the Middle East. Unrest including Saudi airstrikes in Yemen and Iran’s declaration of a “full-scale war” involving the United States, Europe, and Israel fueled concerns over potential supply disruptions. Markets typically react swiftly when conflict threatens major oil shipping routes.

Developments in Ukraine peace negotiations also influenced trading sentiment. President Donald Trump described discussions with Ukrainian President Volodymyr Zelenskiy as making “a lot of progress.” Zelenskiy confirmed that while 90 percent of a 20-point peace framework has achieved agreement, the United States and Ukraine have agreed 100 percent on security guarantees and military dimensions, though critical issues such as control over the Donbas region remain unresolved.

The two leaders met Sunday at Trump’s Mar-a-Lago resort in Florida for over three hours of talks. Trump spoke with Russian President Vladimir Putin for more than an hour before the meeting and indicated he would speak with Putin again afterward. Progress toward peace could reduce market uncertainty, though any deal may still be weeks away.

China’s announcement of expanded fiscal spending for 2026 provided additional support to oil markets. Finance Minister Lan Fo’an pledged at the national fiscal work conference that China would implement more proactive fiscal policy next year, expanding government expenditure to ensure a solid start to the country’s 15th Five Year Plan period covering 2026 through 2030.

The ministry called for stronger measures to leverage government bonds more effectively, improve transfer payment efficiency, and refine expenditure structures. Officials emphasized creating greater synergy between fiscal and financial policies while supporting consumption through continued trade-in programs for consumer goods and expanded investment in strategic areas including advanced manufacturing and talent development.

The policy shift comes as Beijing confronts overlapping economic challenges, including a prolonged property downturn, soft consumer confidence, and external trade pressures. China remains the world’s largest energy consumer, and increased government spending could boost domestic economic activity and fuel demand.

Earlier in the week, crude prices rallied after Trump intensified the United States naval blockade of Venezuela, with seizure of oil tankers as its latest strategy. While Venezuelan crude accounts for only a small share of global supply, it remains vital revenue for the government. Trump ordered a complete blockade of Venezuelan airspace in late November and deployed significant military forces to the region.

In Europe, fighting between Russia and Ukraine continues targeting energy infrastructure. On Thursday, Kyiv struck the Novoshakhtinsk oil refinery, a key supplier of diesel and jet fuel to Russian forces. Trump also announced Thursday that the United States carried out an airstrike against the Islamic State of Iraq and Syria (ISIS) in Nigeria, an Organization of the Petroleum Exporting Countries (OPEC) member.

Despite these geopolitical factors providing short-term support, persistent concerns over oversupply continue pressuring markets. Most major traders expect a global oil surplus next year due to rising production both inside and outside OPEC+. Analysts warn that global supply could outpace demand in 2026, potentially pushing prices lower.

Oil has risen more than three percent so far this week, putting it on track for its best weekly performance since October. However, the commodity remains headed for a loss exceeding 18 percent for 2025, marking its steepest annual decline since the pandemic-driven collapse of 2020.

Market technicals show oil consolidating in a narrow range after recent volatility. Front-month WTI trades around $58.35, with Brent near $62.24 in current sessions. The benchmarks finished the last full trading week of 2025 locked into a tight band, reflecting investor uncertainty about the outlook for 2026.

Lower interest rates generally make holding non-yielding commodities like oil more attractive to investors. The Federal Reserve’s monetary policy stance for 2026 remains a key factor influencing energy markets, with traders anticipating potential rate cuts if economic conditions warrant. However, expectations of abundant supply have overshadowed any support from monetary policy.

While some observers view recent price declines as potentially signaling prolonged weakness, others characterize the current pause as markets attempting to balance competing forces. The combination of geopolitical risk, diplomatic developments, and fundamental supply-demand dynamics will likely determine whether oil can mount a sustained recovery or faces further pressure in the year ahead.