Oil prices fell on Tuesday to their lowest levels since May, as markets began to factor in the potential impact of a peace agreement between Russia and Ukraine on a sector that is already expected to face a significant supply surplus next year.
Brent crude slipped to $59.70 a barrel in early trading—its lowest intraday level since May 5. The international benchmark has not closed below $60 a barrel since the Covid-19 pandemic. US crude West Texas Intermediate ended the previous session at $56.82 a barrel—the lowest level since February 2021.
On Monday, December 16, US president Donald Trump said that a deal to end the war in Ukraine was “closer now than we have ever been”, though European officials cautioned that territorial issues remain unresolved.
Analysts note that any peace agreement could have a pronounced short-term effect on the oil market by potentially unwinding logistical distortions created by sanctions on Russian exports. “A significant volume of oil is locked up in elongated supply chains,” said Martijn Rats, Morgan Stanley’s global commodities strategist.
Despite successive rounds of sanctions, most Russian oil has continued to reach the market, though tankers have been forced to take significantly longer routes from Russia’s western ports to buyers in India and China. “If we are able to return to historical trading patterns, it will be like releasing inventories,” Rats said. By his estimate, “tens of millions—and possibly several hundred million—barrels could become available, as they would no longer be tied up in these extended routes.”
At the same time, he cautioned that the market may be getting ahead of itself. “We have seen similar expectations before, and they have often proved premature,” he noted.
The consultancy Energy Aspects said it does not expect a “rapid peace agreement”, but described the current talks as the main geopolitical source of uncertainty for the oil market—particularly over the Christmas and New Year period, when trading activity typically slows.
This uncertainty comes on top of sustained downward pressure on prices. Brent has fallen for a fifth consecutive month—the longest losing streak in 11 years—and is down nearly $20 a barrel since the start of the year amid fears of an impending oversupply. According to the International Energy Agency, global output rose by 3m barrels a day in 2025, driven by both OPEC producers and non-cartel countries, including the US, Canada, Brazil, and Argentina.
Although OPEC has revised its production growth plans and supply declined last month due to sanctions on Russia and Venezuela, the IEA still forecasts an average surplus of 3.7m barrels a day in 2026—a glut larger than that seen during the pandemic.