Oil market straddles geopolitics, EV shift; WTI seen at $54-57 in Q1 2026

Oil price outlook: The most significant downward pressure on oil prices this month stems from renewed optimism regarding the conflict in Ukraine.

Global Oil Market Faces Structural Shifts Amid Geopolitical Easing

 

The global oil market is navigating a complex landscape shaped by shifting geopolitical risks, divergent agency forecasts, and a rapid transition toward electric mobility. This transformation is evident in crude oil’s underperformance, with prices down 22 per cent (YTD). Selling pressure intensified over the past three months, driving an additional 13 per cent decline as Middle Eastern tensions eased. More recently, optimism surrounding a Ukraine–Russia peace accord has accelerated the downturn, pushing prices down 7 per cent in the past month to four-year lows—Brent slipped below $60, and WTI hovered near $55 per barrel, largely on signs of a breakthrough in Eastern Europe.

 

1. The Ukraine-Russia Peace Path

 

The most significant downward pressure on oil prices this month stems from renewed optimism regarding the conflict in Ukraine. Negotiations in Berlin suggest that consensus has been reached on approximately 90 per cent of the plan.

 

Market Impact: Investors have begun pricing out the "geopolitical risk premium." A formal ceasefire would likely lead to the lifting of sanctions on Russian energy firms, potentially releasing up to 170 million barrels of oil currently stored on water back into the global market.

 

2. Russian Crude Exports: November and YTD Performance

 

Russia’s energy sector faced a challenging November as Western sanctions and tighter enforcement weighed on logistics and buyer sentiment.  November Exports: Russian crude exports fell by approximately 420,000 barrels per day (kb/d) in November, bringing total oil exports down to 6.9 million barrels per day (mb/d). the annual  exports has remained surprisingly resilient. Total supply is up by roughly 120 kb/d compared to 2024 levels, though growth has been significantly stymied by the late-year sanctions on major producers like Rosneft and Lukoil.

 

3. Global Demand & Supply Projections (OPEC, IEA, EIA)

 

The three major energy agencies released their final 2025 reports this week, revealing a consensus on a looming supply surplus but differing on the scale of demand growth.

 

OPEC shows the most affirmative forecast with 1.3mbpd jump in demand and expect resilient physical markets despite price drops.

 

IEA forecast demand at 830,000 mbpd but supply will outcast demand by 3.8 mbpd by end of 2026. The IEA warns that while global inventories are at four-year highs, the surplus is currently "masked" by regional tightness in refined products, caused by unplanned refinery outages and upcoming EU bans on Russian-derived fuels.

 

 EIA is seeing demand at 1.1 million | 104.5 mb/d and cautiously optimistic, citing petrochemicals as a driver.

 

4. The EV Acceleration: A Structural Shift

 

The transition away from internal combustion engines (ICE) continues to accelerate, directly impacting long-term oil demand forecasts. Market Growth: The global EV market is experiencing an "exceptional acceleration" phase. In 2025, sales are projected to reach 21.3 million units, a significant jump from 2024. Penetration: Global EV market share is expected to hit 24 per cent this year. China remains the clear leader, with a staggering 51 per cent market penetration in the first half of 2025.

 

US EIA weekly inventories

 

The US commercial reserves stood at 4 per cent below the avg inventory level at 425.7 million barrels, while gasoline demand is averaging around 8.5mbpd in November, but US production has accelerated to all-time highs of 13.86 mbpd.

 

Outlook:

 

The global oil market at the end of 2025 is caught between two worlds: a traditional energy economy reacting to immediate geopolitical shifts in Ukraine, and a future economy defined by the rapid adoption of electric vehicles. While OPEC maintains that fundamentals are supportive, the overarching trend points toward a well-supplied market where the influence of geopolitical conflict is beginning to wane. We expect WTI to trade in the range of $54-$57 in Q1-2026, but any sudden decline in global economic activities during Q1, would likely see WTI testing support of $52.  Disclaimer: Mohammed Imran is a research analyst at Mirae Asset Sharekhan. Views expressed are his own.