Oil drops 2% due to an impending supply glut and hopes for a peace agreement with Ukraine
Oil prices closed down over 2% on Friday as investors considered an impending global supply surplus, while also monitoring the possibility of a peace agreement in Ukraine ahead of discussions this weekend between Ukrainian President Volodymyr Zelenskiy and U.S. President Donald Trump.
Brent crude futures closed lower by $1.60, a decline of 2.57%, ending at $60.64 per barrel. U.S. West Texas Intermediate (WTI) crude closed lower by $1.61, a decrease of 2.76%, finishing at $56.74.
Although supply disruptions have contributed to a rebound in oil prices in recent sessions from their near five-year low on December 16, they are poised for their sharpest annual decline since 2020. Brent and WTI have decreased by 19% and 21% respectively this year, as increasing crude production has raised worries about a potential oil surplus in the coming year.
Aegis Hedging analysts noted on Friday that while geopolitical premiums have offered short-term price support, they have not significantly altered the fundamental oversupply narrative.
According to the December oil market report from the Paris-based IEA, the global oil supply in the coming year is projected to surpass demand by 3.84 million barrels per day.
FOCUS ON RUSSIA-UKRAINE PEACE INITIATIVE
Investors are closely monitoring the Russia-Ukraine peace process and its potential effects on future oil prices, as a peace agreement might result in the lifting of international sanctions on Russia’s oil sector.
Zelenskiy is set to address territorial matters, the primary obstacle in negotiations to conclude the war, with Trump in Florida on Sunday, as a 20-point peace framework and a security guarantees agreement approach finalization.
Zelenskiy announced the meeting, stating that “a lot can be decided before the New Year.”
The president of Ukraine also informed Axios that he would be open to calling a referendum on a mutually agreed peace framework, provided that Russia consents to a ceasefire.
A foreign policy aide to Russian President Vladimir Putin communicated with members of the U.S. administration following Moscow’s receipt of U.S. proposals regarding a potential peace deal for Ukraine, the Kremlin announced on Friday.
Regarding the oil price, Dennis Kissler, senior vice president of trading at BOK Financial, stated, “the negatives remain of elevated global oil storage, and slight progress on Ukraine-Russia peace talks.”
The White House has directed its military forces to prioritize a “quarantine” of Venezuelan oil for at least the next two months, suggesting that Washington is currently leaning towards economic measures rather than military action to exert pressure on Caracas.
“The current global effect on crude prices appears to be minimal,” Kissler remarked regarding U.S. efforts to intercept sanctioned oil tankers departing from and arriving in Venezuela.
Even with the headline risk associated with Venezuela, analysts from Aegis Hedging indicate that the wider market continues to concentrate on the increasing global surplus.
