US Oil Prices Plummet to Lowest Levels Since 2021 Amid Russia-Ukraine Peace Talks Optimism

US oil prices extended losses on Tuesday, reaching their lowest levels since 2021, as there is an increased optimism over Russia-Ukraine peace talks and fears of a widening supply surplus weighed heavily on markets. In midmorning European trade, Brent crude fell 1.8% to $59.46 a barrel, and West Texas Intermediate (WTI) slipped 1.9% to $55.60 a barrel. At their lowest point during the session, Brent dropped nearly 3%, briefly falling below $60 for the first time since May, while US crude futures slid as much as 3.2%. Renewed progress in talks to end the Russia-Ukraine war has raised hopes that US sanctions on Russian oil companies could eventually be eased. That prospect has reduced the geopolitical risk premium and added pressure on prices in an already well-supplied market. “While Russian seaborne oil exports have held up well since the imposition of sanctions on Rosneft and Lukoil, this oil is still struggling to find buyers,” analysts at ING said to Wall Street Journal. “The result is a growing volume of Russian oil at sea.” Global oil inventories surged to four-year highs in October, according to the International Energy Agency. Oil stored on tankers or in transit also increased sharply as sanctioned barrels failed to find buyers. Crude prices are now down more than 20% this year, pressured by expectations of a growing surplus. The IEA estimates that next year’s supply surplus will be the largest on record, even after OPEC and its allies delayed output increases into early 2026 due to an uncertain outlook. “All eyes today are looking for whether Brent will close below $60 or not,” said Bjarne Schieldrop, chief commodities analyst at SEB AB told Bloomberg. “But for sure we are heading lower until the point when OPEC+ pivots from ‘hold’ to ‘cut’.” As reported by Bloomberg, signs of weakness are spreading across the oil market. Middle Eastern crude prices slipped into contango, a bearish pattern where near-term prices are cheaper than later deliveries. Similar patterns have emerged for some US Gulf Coast barrels, and the WTI futures curve has flattened sharply. Refined fuel markets are also losing momentum. Premiums for gasoline and diesel over crude have eased, adding further downward pressure. On the demand side, fresh data from China showed economic momentum slowed in November, raising concerns about oil consumption in the world’s second-largest oil user. In the US, weak job growth has also indicated a possible slowdown in demand. Falling prices offer relief to central bankers by easing inflation pressures, US retail gasoline prices recently fell to their lowest level since 2021 they pose serious challenges for oil-producing nations.