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Oil prices are soaring to their worst year since the coronavirus crash.
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Heavy supply from non-OPEC members and cooling demand caused crude oil prices to fall by about 20%.
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Russia is feeling the pinch as low prices and sanctions hit oil revenues and growth.
Oil prices were on track for their biggest annual drop since the coronavirus slump in 2020, as worries about a deepening oversupply and economic pressure on Russia from rising sanctions and discounts came to light.
U.S. benchmark West Texas Intermediate crude futures are currently trading at about $58 a barrel, down nearly 20% for the year. Meanwhile, Brent crude futures are trading at about $61 a barrel.
Oil prices have been trending downward as producers ramp up output and demand growth slows.
Supply and demand dynamics weigh heavily on prices, blunting the impact of geopolitical tensions that could have boosted crude prices, including the U.S. strike against Iran in June and the U.S. blockade of sanctioned oil tankers entering and leaving Venezuela.
“What’s really striking about the oil market this year is the lack of volatility, especially given the myriad of geopolitical events and supply risks,” ING head of commodity strategy Warren Patterson wrote earlier this month.
Patterson attributed this to fatigue from geopolitical developments and growing expectations for a supply glut in the second half of the year.
For Russia, persistently low oil prices amplify the impact of sweeping Western sanctions imposed on it over its full-scale invasion of Ukraine in February 2022.
Discounts on oil sold at Russia’s export terminals have returned to record highs, squeezing exporters’ profits while energy revenue becomes more important to President Vladimir Putin’s government.
Russian crude sold at a discount of $20 to $30 a barrel to Brent crude in December, setting a record for the widest port spread since early 2022, Reuters data showed.
An analysis by Goldman Sachs earlier this month showed that Russia’s oil export revenue (in rubles) has plunged 50% this year, from 7.6% of GDP to just 3.7%.
The pressure comes as Russia’s economic momentum slows.
Russia’s GDP grew by 0.6% year-on-year in the third quarter, lower than the 1.1% growth rate in the second quarter and the 1.4% growth rate in the first quarter.
Economic growth will cool further sharply. The central bank currently expects economic growth to be only 0.5% to 1.5% in 2026, and has lowered its growth forecast for 2025 to 0.5% to 1%, lower than previous expectations.
