Oil prices are on track for their steepest annual drop since the Covid-era crash in 2020, battered by fears of a deepening supply glut — and compounding economic pressure on Russia as sanctions and discounts bite harder.
US benchmark West Texas Intermediate crude oil futures are trading around $58 a barrel, down nearly 20% for the year. Meanwhile, Brent crude futures are around $61 a barrel.
Oil prices have been on a downtrend due to rising output from producers and slowing demand growth.
The supply-demand dynamic has weighed heavily on prices, dulling the impact of geopolitical tensions that might otherwise have lifted crude, including US strikes on Iran in June and the US’s blockade of sanctioned oil tankers going to and from Venezuela.
“What’s really stood out in oil markets this year is the lack of volatility, particularly given the myriad geopolitical events and supply risks,” wrote Warren Patterson, the head of commodities strategy at ING, earlier this month.
Patterson attributed that to fatigue over geopolitical developments and growing expectations of a supply surplus toward the latter part of the year.
Russian economic squeeze
For Russia, persistently low prices have magnified the impact of sweeping Western sanctions over its February 2022 full-scale invasion of Ukraine.
Discounts on Russian oil sold at export terminals have climbed back toward historic highs, squeezing exporters’ profits just as energy revenues become more critical for Russian President Vladimir Putin’s administration.
Russian crude sold at discounts of $20 to $30 a barrel below the Brent oil price in December, making its widest gap at ports since early 2022, according to data from Reuters.
An analysis from Goldman Sachs earlier this month showed Russia’s oil export revenues, measured in rubles, have plunged 50% this year, tumbling from the equivalent of 7.6% of GDP to just 3.7%.
The pressure comes as Russia’s economic momentum slows.
Russia’s GDP grew 0.6% in the third quarter from a year ago, slower than the growth rates of 1.1% in the second quarter and 1.4% in the first quarter.
Economic growth is set to cool even more sharply. The central bank now sees economic expansion of just 0.5% to 1.5% in 2026 and cut its 2025 growth forecast to 0.5% to 1%, down from earlier expectations.
That follows economic growth of 4.3% in 2024, when defense spending, state subsidies, and higher energy revenues bolstered Russia’s economy.
