Oil prices gained on Thursday, rebounding from two days of declines, as a larger-than-expected draw in U.S. crude inventories provided support while markets closely monitor significant developments in Venezuela. Brent crude futures climbed 38 cents, or 0.60%, to $60.34 per barrel, while U.S. West Texas Intermediate crude rose 37 cents, or 0.70%, to $56.36 per barrel.

US Inventory Data Supports Prices

U.S. crude oil inventories recorded a substantial decline of 3.8 million barrels for the week ended January 2, significantly exceeding market expectations and providing the primary catalyst for Thursday's price recovery. The Energy Information Administration reported that crude stocks fell to 419.1 million barrels, contrasting sharply with analysts' expectations for a 447,000-barrel rise according to a Reuters poll.

Market Dynamics and Trading Activity

Both oil benchmarks had fallen more than 1% for a second consecutive day on Wednesday, with market participants expecting ample global supply. Analysts at Morgan Stanley estimate a surplus of as much as 3 million barrels per day in the first half of 2026. The recent declines led some traders to take buying opportunities on Thursday.

"Pullback buying has nudged prices slightly higher, but persistent oversupply concerns are capping upside momentum. While markets are watching developments in Venezuela, the downward trend is likely to continue for now," said Mitsuru Muraishi, an analyst at Fujitomi Securities, forecasting that WTI will likely fall below $54.

Venezuela Oil Developments

Significant developments in Venezuela are adding complexity to global oil markets. Top U.S. officials stated that the U.S. needs to control Venezuela's oil sales and revenue indefinitely to stabilize the country's economy, rebuild its oil sector, and ensure it acts in America's interests.

The U.S. seized two Venezuela-linked oil tankers in the Atlantic Ocean on Wednesday, including one sailing under Russia's flag, as part of President Trump's aggressive push to dictate oil flows in the Americas. Venezuela will be turning over between 30 million and 50 million barrels of sanctioned oil to the U.S., according to Trump's social media post.

Supply Chain Implications

The Venezuela deal could require rerouting cargoes that were bound for China. Chinese independent refiners that consume much of the country's Venezuelan imports could switch to Iranian oil to make up the shortfall. Meanwhile, Chevron is in talks with the U.S. government to expand a key license to operate in Venezuela, enabling increased crude exports to its own refineries and sales to other buyers.

Refinery operations in the U.S. showed modest increases during the reporting period, with crude runs rising by 62,000 barrels per day and utilization rates remaining steady at 94.70%. Net U.S. crude imports increased by 563,000 barrels per day during the week, contributing to the overall supply dynamics.

Oil markets are concluding 2025 with substantial losses, as persistent oversupply concerns have overshadowed a year marked by geopolitical tensions, wars, and shifting trade policies. Brent crude futures declined to $61.13 per barrel, representing an 18% annual decline—the steepest since 2020. This marks Brent's third consecutive yearly fall, establishing its longest losing streak on record.

Market Performance and Price Trends

U.S. Crude Oil has similarly struggled, slipping to $57.75 per barrel and heading for a 19% annual drop. Average prices for both benchmarks have reached their lowest levels since 2020, reflecting the sustained pressure from supply-side dynamics.

Oversupply Fundamentally Reshapes Trading Behavior

Analysts indicate that expectations of excess supply have fundamentally altered near-term trading patterns. The International Energy Agency has projected that global oil supply could exceed demand by approximately 3.85 million barrels per day in 2026—a surplus substantial enough to cap rallies even during geopolitical disruptions.

This outlook has encouraged traders to fade price strength, viewing disruptions as temporary rather than structurally market-altering events. BNP Paribas commodities analyst Jason Ying expects Brent to dip to $55 per barrel in the first quarter of 2026 before recovering to around $60 for the remainder of the year. He attributes this resilience to U.S. shale producers' ability to hedge at higher prices, making supply more consistent and insensitive to price movements.

Geopolitical Events Fail to Provide Lasting Support

Despite numerous geopolitical developments throughout 2025, oil markets showed limited upside response. The year began strongly following tougher U.S. sanctions on Russia that disrupted flows to major buyers including China and India. Additional support came from the intensification of the Ukraine war, drone attacks on Russian energy infrastructure, disruptions to Kazakhstan's exports, and a brief Iran-Israel conflict threatening Strait of Hormuz shipping.

However, each price spike proved short-lived as OPEC+ accelerated output increases and concerns over U.S. tariffs' impact on global growth and fuel demand weighed on markets. Navneet Damani, Head of Research – Commodities at Motilal Oswal Financial Services, noted that sanctioned barrels from Russia, Iran, and Venezuela continued flowing, increasing oil-on-water storage and blunting fears of lasting supply shocks.

OPEC+ Strategy Shift Reinforces Surplus Conditions

OPEC+ shifted strategy during the first half of 2025 from price defense to market-share protection, returning supply aggressively to the market. Between April and December, the group added nearly 2.9 million barrels per day, weakening its pricing authority and reinforcing surplus conditions. The organization has paused output hikes for the first quarter of 2026 after releasing substantial volumes since April, with its next meeting scheduled for January 4.

India Experiences Sharp Decline in Russian Crude Imports

India's crude import patterns reflected the impact of sanctions, with Russian crude imports falling sharply in December to their lowest levels in three years. Data from Kpler showed imports declined to approximately 1.14 million barrels per day, down from 1.84 million barrels per day in November, following sanctions on Russian producers Rosneft and Lukoil.

Despite the decline, Russia remained India's largest crude supplier, accounting for roughly 25% of total imports. Indian refiners pivoted toward suppliers in the Middle East, West Africa, and the Americas while exploring indirect Russian flows through intermediaries.

Market Outlook Remains Anchored by Surplus Expectations

Goldman Sachs, in its Commodities Outlook 2026, indicated that next year will likely remain characterized by excess oil supply, even as risks linked to Russia, Venezuela, and Iran persist. Most analysts expect supply to exceed demand in the coming year, with surplus estimates ranging from around 2 million barrels per day to nearly 4 million barrels per day. Unless geopolitical disruptions translate into sustained and material supply losses, rallies are expected to fade quickly in an oversupplied market environment.