Oil prices rise at start of new year as geopolitical tensions simmer

Brent and WTI lost nearly 20% in 2025 – the worst annual showing since 2020

The wreckage of a drone in the Ukrainian city of Zaporizhzhia. Russia and Ukraine have accused each other of New Year's Day attacks. AFP

Oil prices edged higher on the first day of trading in 2026, after logging their worst annual performance in six years, as Russia's war on Ukraine and US-Venezuela tensions stoked supply concerns.

Brent, the benchmark for two thirds of the world's oil, was up 0.69 per cent at $61.27 per barrel at 11.54am UAE time. West Texas Intermediate, the gauge that tracks US crude, climbed 0.73 per cent to $57.84 a barrel.

From last Friday's close, Brent and WTI are on track for a nearly 2 per cent gain. For 2025, both benchmarks lost nearly 20 per cent.

Russia and Ukraine, who remain at war despite US-brokered peace talks, accused each other of drone strikes on New Year's Day. Expectations of a potential deal have kept a lid on oil prices.

The US, on the other hand, imposed sanctions on Venezuela's arms trade, having accused the country of aiding in the trafficking of narcotics. The US military also struck alleged drug boats in the Pacific as part of its campaign in the region.

Venezuela, home to the world's biggest proven oil reserves, produces 1.1 million barrels of crude a day, with most of it going to China and India, Rystad Energy analysis shows. Those geopolitical tensions, along with other factors that include a supply glut and economic concerns, have hit oil markets, dragging it to its lowest levels since 2020.

Oil's "small moves kept them locked in the tight range established in the final week of 2025", analysts at Singapore-based Vanda Insights said.

"The US intensified its maximum pressure campaign against [Venezuelan President] Nicolas Maduro through the final days of December ... and kept up a flurry of diplomacy over Ukraine through the final days of December, but with no tangible progress in breaking a continuing deadlock," they said.

Concerns over a looming oil glut have also intensified as producers focus on output. The Opec+ group, led by Saudi Arabia and Russia, began restoring supply in April as it sought to regain market share lost during years of cuts, but are pausing further increases for the first quarter of this year amid weaker seasonal demand.

The International Energy Agency expects supply to exceed demand by 3.85 million bpd in 2026, equal to nearly 4 per cent of global consumption.

Analysts say Brent crude is under sustained pressure, with prices slipping below $60 per barrel. The weak performance is expected to continue, as supply growth outpaces demand. This is set to heighten fiscal pressure on some oil-dependent Gulf producers and sharpen scrutiny of the strategy of Opec+ to restore output to regain market share, even as global consumption expands.

The oil market is entering a period of structural imbalance, with production expected to grow at about three times the pace of demand despite steady consumption gains, analysts said.