Oil falls to 5-Year Low... why?

December 16, 2025

Both WTI and Brent crude oil prices are dropping to multi-year lows this morning.   WTI oil per barrel is now at the lowest level since 2021!   If these hold, then gas prices should follow eventually.

Why have oil prices been falling?  Two main reasons.  First, increased supply.  The Saudis have opened the production valves to full blast over the past year.  Why?  Their stated reason is to preserve “market share”.  But it’s widely assumed that they want to curry favor with the Trump administration.  President Trump has been calling for lower oil prices, so this would give him a clear political win.  (Unfortunately, however, lower prices are bad for US shale producers who need oil above a certain price in order for it to be profitable.)

Second reason for the drop, decreased demand.  The falling demand component is mostly driven by China.  Over the past two decades, China accounted for more than half global oil demand growth.  That’s now stopped and even started to decline somewhat.   China has moved its economy away from oil reliance.  Specifically, China has aggressively pushed the adoption of EV cars, LNG trucks, and high speed rail.  This triumvirate means that the Chinese economy can still grow, but without a corresponding increase in demand for oil.

And now today, the market sees hope for an end of the war in Ukraine.  (I know, I know…  Seems unlikely to me too.)  Apparently, a potential security guarantee by the United States is changing some minds in Ukraine.  We’ll see.  But of course, if/when that war eventually ends, the sanctions on Russia will presumably end, and their oil production will flow more freely.

These three things together are pushing down oil prices today (and over the past recent times).