Crude oil markets closed out a turbulent week on firmer footing Friday, with West Texas Intermediate settling at $59.44 per barrel after experiencing some of the most dramatic price swings since early 2025. The stabilization comes as traders digest easing fears of an immediate U.S. military strike on Iran while grappling with a longer-term outlook that suggests lower prices ahead.

A Week of Whiplash

The past five trading days delivered a masterclass in energy market volatility. WTI crude posted a weekly gain of over 1% despite Thursday's dramatic 5% single-session plunge—the sharpest decline since October—as the Iran risk premium that had built up over previous sessions evaporated almost overnight.

"What we witnessed this week was classic geopolitical premium pricing followed by rapid deflation," said Sarah Chen, senior energy analyst at Meridian Capital. "Markets priced in worst-case scenarios around Iran, then just as quickly repriced when those fears didn't materialize."

Brent crude futures fell to $63.50 per barrel on Friday, extending losses from the previous session as concerns over potential U.S. military action on Iran's nuclear facilities gave way to cautious optimism about regional stability. Protests in Iran and reports of potential strikes had earlier pushed prices to multi-month highs before the reversal.

Supply Concerns Driving Early-Year Volatility

Beyond Iran, a confluence of supply disruptions kept traders on edge throughout the week. Turmoil in Venezuela, supply interruptions to Kazakh exports in the Black Sea caused by drone attacks, and maintenance issues all contributed to the nervous trading environment.

Iran produces approximately 3.3 million barrels per day, making it OPEC's fourth-largest producer. Any significant disruption to that output would meaningfully tighten global supplies, at least temporarily. However, with the immediate threat apparently receding, attention is shifting back to the bearish fundamentals that analysts expect to dominate 2026.

The Bearish 2026 Outlook

Despite this week's volatility, the broader trajectory for oil prices points decidedly lower. The U.S. Energy Information Administration's latest Short-Term Energy Outlook paints a challenging picture for producers, forecasting Brent crude to average $56 per barrel in 2026—a 19% decline from 2025 levels.

WTI is projected to average even lower at $52 per barrel this year, falling further to $50 in 2027. The culprit? A building global surplus as production outpaces demand growth.

"Global production of liquid fuels is expected to increase by 1.4 million barrels per day in 2026, driven primarily by crude oil production growth in OPEC+. Meanwhile, demand growth continues to moderate as efficiency gains and the gradual transition to electric vehicles reduce the world's appetite for oil."

— U.S. Energy Information Administration, January 2026 STEO

U.S. Production Set to Decline

In a notable development, U.S. crude oil production is forecast to decrease for the first time in years. After reaching a record annual average of 13.6 million barrels per day in 2025, domestic output is expected to decline by less than 1% this year and 2% in 2027.

The slowdown reflects the delayed impact of lower prices on drilling activity. With sustained weak prices, fewer rigs are being deployed, and the productivity gains that had offset reduced drilling are no longer sufficient to maintain growth.

"American shale has been remarkably resilient, but there's a price below which even the most efficient operators start pulling back," noted Marcus Rodriguez, head of commodities research at Western Energy Partners. "We're approaching that threshold."

What It Means for Energy Investors

For energy sector investors, the outlook presents a mixed picture. Lower oil prices typically pressure upstream producers' earnings and cash flows, potentially limiting dividend growth and share buyback programs that have rewarded shareholders in recent years.

However, the energy services sector could see more nuanced impacts. While drilling activity may decline in the U.S., international projects and the need to maintain existing production could provide some support for service companies.

The OPEC+ alliance continues to hold 3.24 million barrels daily off the market, providing a floor of sorts for prices. But with non-OPEC production continuing to grow and demand growth moderating, the cartel faces difficult decisions about whether and when to restore supply.

Trading the Week Ahead

With U.S. markets closed Monday for Martin Luther King Jr. Day, energy traders will have an extended weekend to digest the week's events. When trading resumes Tuesday, attention will likely focus on any new developments regarding Middle East tensions and the latest inventory data from the American Petroleum Institute and EIA.

Friday's close near session lows suggests some lingering caution despite the week's overall gains. As one veteran floor trader put it: "In energy markets right now, the only certainty is uncertainty. The geopolitical calendar is loaded, but so is the global supply picture. It's a constant tug of war."

For now, oil appears to have found its footing after a week of wild rides. Whether that equilibrium holds will depend on forces both political and fundamental that remain difficult to predict.