By Antonio Di Giacomo, Senior Market Analyst at XS.com
Crude oil prices fell by more than 1% on Tuesday due to a combination of factors that exerted downward pressure. First, OPEC+’s decision to pause production increases during the first quarter of 2026 represents an attempt to offset expectations of lower consumption. Still, at the same time, it raises doubts about the actual dynamics of supply and demand. International benchmarks recorded declines: Brent crude fell to $63.80 per barrel, while U.S. WTI dropped to $59.95.
Adding to this are weak manufacturing data from both Asia and the United States, which are interpreted as a precursor to reduced global activity and, in turn, lower manufacturing, which means lower energy demand, including oil. This signal of economic cooling coincides with a strong dollar; a stronger currency makes oil more expensive for holders of other currencies and limits its appeal as an alternative asset.
Meanwhile, the diminishing impact of U.S. sanctions on Russian oil companies such as Rosneft and Lukoil has reduced supply-side tension, a factor that had previously been bullish. With that effect fading, the crude oil market loses one of the supports that had fueled expectations of tighter supply.
Analysts note that the latest Purchasing Managers’ Index (PMI) results suggest weakening oil demand, meaning the combination of lower manufacturing, persistent trade uncertainty, and a stronger dollar creates a complex outlook for prices. In particular, OPEC+’s suspension of production hikes signals caution, indicating that producers perceive a softer demand environment.
Additionally, according to the International Energy Agency (IEA), global supply growth for 2025–2026 is outpacing demand growth, raising the risk of an oil surplus. This potential oversupply weighs on price expectations and reinforces the view that the $60–$65 per barrel range could represent a short-term ceiling.
In this context, traders face a dilemma: on one hand, geopolitical risks remain and could reverse the trend, but on the other, the macroeconomic environment points to weaker demand and a strong dollar acting as a drag. This combination fosters a more cautious sentiment; crude oil no longer enjoys the strong momentum it had during the post-pandemic recovery and must now contend with multiple downward forces at once.
In the coming quarters, key elements to watch will include the evolution of global manufacturing, particularly in Asia and the U.S., the trajectory of the dollar (and U.S. central bank actions), and OPEC+’s production response. If demand weakens further while supply continues to expand, prices could even approach $50 per barrel in specific scenarios.
In conclusion, crude oil’s decline stems from a convergence of weak signals, stagnant or falling demand, OPEC+’s temporary production freeze, the fading effect of sanctions, and a firm dollar, all of which have shifted market sentiment. As a result, crude prices face a new normal: more moderate and with less room for unexpected gains. For producers, exporters, and investors, the focus should be on the evolution of the global economic cycle, international monetary policy, and producer discipline, as these will determine the path of the oil market in the months ahead.