The price of the global crude oil benchmark, Brent crude, lost 2.71 per cent or $1.64 to settle at $58.92 per barrel on Tuesday, its lowest level since early 2021, as a looming surplus and possible peace agreement in Ukraine weigh on the market.
The US West Texas Intermediate (WTI) crude fell 2.73 per cent or $1.55 to close at $55.27 per barrel, the lowest since February 2021 during the COVID-19 pandemic.
Fears of an oversupply were marginally offset by the US seizing an oil tanker off Venezuela last week, but traders and analysts said a glut of floating storage.
Also, a surge in Chinese buying from Venezuela in anticipation of sanctions were also limiting the market impact.
The oil market is under pressure this year as members of the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) have rapidly ramped up production after years of output cuts.
Investors are also pricing in the possibility of lower geopolitical risk as President Donald Trump pressures Ukraine to accept a peace agreement with Russia.
The threat of supply disruptions has loomed over the oil market since Russia launched its full-scale invasion of Ukraine in 2022. The US and its European allies targeted Russia’s crude industry with sanctions in response.
Now, with the US offering to provide NATO-style security guarantees for Ukraine and European negotiators reporting progress in talks on Monday, there was renewed optimism that an end to the war was closer.
Ukraine’s attacks on oil infrastructure and US sanctions on Russian oil companies would likely be lifted relatively quickly in the event of an agreement.
Market analysts noted that the end of US sanctions on Russia would also change the incentives for OPEC+ as the group would likely resume a strategy to retake market share through higher production. More supply could lead to weaker prices.
Adding to the pressure, soft Chinese economic data on Monday further fuelled concerns that global demand may not be strong enough to absorb recent supply growth.
Falling oil prices could signal a slowing economy after the US job growth totalled 64,000 in November but declined by 105,000 in October. The unemployment rate hit a four-year high of 4.6 per cent.
Barclays analysts expect Brent to average $65 per barrel in 2026, slightly ahead of the forward curve, due to the expected 1.9 million barrels per day surplus they see as being priced in already.