It’s that time of year again, when those who follow or opine on financial markets take stock of the year just gone and look forward to the year to come. In many ways, it might seem like a pointless exercise. I mean, if a year is a long time in politics, it is an eternity in trading, and there is no way of knowing even what will be driving commodity prices twelve months from now, or in which direction.
Despite that, though, sober year-end reflection does have a purpose for traders and investors. It enables you to look back at what you got right and what you got wrong, and to draw lessons from both. My own record has been mixed, as it is for any trader who is honest with themself. I have made some good calls but have also got some things horribly wrong.
That is to be expected but looking back, there is a common thread in the calls that didn’t pan out. They have come mainly when the market was focused on something other than what I expected to drive it. Fortunately, operating with discipline and setting and sticking to stop losses for every trade limited my losses when that happened. However, I could have reduced those losses even further if I had cut as soon as I realized that my priorities weren’t being reflected by traders.
The good calls, on the other hand, typically came when I focused on the kind of fundamental factors that drive long-term moves rather than reacting to whatever headlines were dominating at any time. Taking a step back and considering conditions…
It’s that time of year again, when those who follow or opine on financial markets take stock of the year just gone and look forward to the year to come. In many ways, it might seem like a pointless exercise. I mean, if a year is a long time in politics, it is an eternity in trading, and there is no way of knowing even what will be driving commodity prices twelve months from now, or in which direction.
Despite that, though, sober year-end reflection does have a purpose for traders and investors. It enables you to look back at what you got right and what you got wrong, and to draw lessons from both. My own record has been mixed, as it is for any trader who is honest with themself. I have made some good calls but have also got some things horribly wrong.
That is to be expected but looking back, there is a common thread in the calls that didn’t pan out. They have come mainly when the market was focused on something other than what I expected to drive it. Fortunately, operating with discipline and setting and sticking to stop losses for every trade limited my losses when that happened. However, I could have reduced those losses even further if I had cut as soon as I realized that my priorities weren’t being reflected by traders.
The good calls, on the other hand, typically came when I focused on the kind of fundamental factors that drive long-term moves rather than reacting to whatever headlines were dominating at any time. Taking a step back and considering conditions underlying headline-driven moves is usually a good habit to form, and it certainly helped last year.
Probably my best call this year was the first I made, when I detailed what I expected in a broad way from crude in 2025. In that piece, I said that I anticipated weakness in the first part of the year, followed by a bounce and then a more serious selloff, resulting in crude finishing the year lower than where it began it. At first, with gains in January, that didn’t look all that clever but overall, it worked out pretty well…
So, what can we expect from crude in 2026?
According to this Alex Kimani piece, oil executives expect a somewhat dull year, with prices staying low and finishing the year right around where they are now. That is interesting because these are the people best placed to know what is in the pipeline (pun intended), but from a trader’s perspective, oil executives’ predictions for oil are often a contrarian indicator. They ultimately decide output levels, and if they are cautious in expectation of lower prices, global supply could well end up much tighter than many expect.
That is also true if there is no lasting peace in Ukraine, or for that matter in the Middle East. There is a theory that both conflicts will be resolved next year, releasing supply and putting downward pressure on prices. There is a strong case to be made, however, that an end to either war, let alone both, is wishful thinking. Color me a cynic if you wish, but I am not sure that either Putin or Netanyahu are the compromising type. Their political situations make settling for anything less than total victory risky, and I don’t see the global community giving them that. Both wars will probably drag on. They may cool to a simmer and be less in the news, but their impact on oil will remain.
That is a bit depressing, but there is some good news in what I expect on the demand side of the pricing equation.
The US economy does look to be in a precarious position in some ways. Inflation, while not at levels previously seen, is still present, and the latest unemployment report showed the highest headline rate since the pandemic. However, low oil prices will help with inflation, as will what seems to be a more restrained policy on tariffs from President Trump, while the Fed’s moves to lower rates over the last couple of months should have at least some stimulative effect.
Overseas, China remains the most important market for oil and, once again, I disagree with conventional wisdom on what 2026 will hold there. The common belief seems to be that the Chinese economy is suffering and that will negatively impact oil demand. What I see, though, is a mixed bag of economic data from China. Yes, consumer spending is weaker than it might be, and yes, there are still massive problems in real estate. But their industrial sector, which is the main driver of oil demand, is doing just fine, so I don’t see a big drop in global oil demand led by China.
Put all that together, and we are going into a year where supply could be constrained by low prices and continued geopolitical risk, while demand, if not robust, will at least hold up and could grow. That is why I expect oil to be higher in a year’s time.
However, the negativity that exists now will persist into the first couple of months, so we probably won’t see much strength early in the year. In fact, I expect continued weakness in January, and a move below $50 wouldn’t come as a surprise. Before long, though, for all the reasons listed above, I expect oil prices to bounce back, possibly quite significantly, finishing the year above $70.
Whatever next year brings, though, remember the most important things. Stay on top of the news, trade with discipline, and keep your emotions in check. If you do that, whether oil moves up, down, or sideways in 2026, you will be just fine!
