Oil prices on Tuesday slid to their lowest levels since May as traders began to price in the potential impact of a Russia-Ukraine peace deal on a crude market already expected to be heavily oversupplied next year.
The price of Brent crude fell to $59.70 (€50.71) a barrel in early trading, its lowest intraday level since May 5. The international benchmark price has not closed below $60 a barrel since the Covid-19 pandemic.
West Texas Intermediate, the US benchmark, closed at $56.82 a barrel on Monday, its lowest since February 2021.
US President Donald Trump said on Monday that a deal to end the war in Ukraine was “closer now than we have ever been”, although European officials cautioned that territorial issues had yet to be resolved.
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Analysts said any peace deal in Ukraine would have a significant short-term effect on the oil market by potentially unwinding logistical distortions created by sanctions on Russian exports. “There is a large amount of oil locked up in extended supply chains,” said Martijn Rats, Morgan Stanley’s global commodities strategist.
While most Russian oil has continued to reach the market despite successive rounds of sanctions, tankers have been forced to travel much longer distances from Russia’s western ports to buyers in India or China.
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“If we can get back to historical trading patterns, it is almost like an inventory release,” said Mr Rats. “Definitely tens of millions, maybe a few hundred million barrels could be made available because they are not locked up in these long routes anymore.”
He warned, however, that markets may be getting ahead of themselves. “We have seen this on a few occasions before and it turned out to be premature.”
Energy Aspects, a consultancy, said it did not expect “a rapid peace deal” but described the latest negotiations as the biggest geopolitical wild card for the oil market, particularly during the Christmas and new year period when trading volumes are traditionally thin.
The uncertainty comes after a period of sustained downward pressure on oil prices. Brent crude has fallen for five consecutive months — its longest losing streak in 11 years — and is down nearly $20 a barrel this year on fears of a looming glut.
Global production has risen by 3mn barrels a day in 2025, according to the International Energy Agency, driven by Opec and non-Opec countries including the US, Canada, Brazil and Argentina.
While Opec has now reined in its growth plans, and supply fell last month because of sanctions on Russia and Venezuela, the IEA still expects a surplus of 3.7mn b/d of oil on average in 2026, an even bigger overhang than was seen during the pandemic. - Copyright The Financial Times Limited 2025
