Benchmark Brent crude oil prices fell to their lowest levels since February 2021, ending Tuesday below the psychological $60 per barrel mark as traders became more optimistic about a Ukraine ceasefire deal that would reduce Russian supply risks.
In London, Brent crude for February loading shed $1.64 to settle at $58.92/bbl, while in New York, January WTI on the Nymex closed $1.55 lower at $55.27/bbl.
While traders have considered the crude market well supplied for much of this year, bifurcated trade flows, attacks on Russian energy infrastructure and several theaters of geopolitical risks with implications for oil markets — such as Russia, Venezuela and Iran — have added to oil’s relative price resilience and tightened refined products markets, particularly diesel.
However, these critical supports have started to give way recently, even as tensions threatening Venezuela’s oil trade are on the rise.
Indeed, benchmark Nymex RBOB gasoline fell by about 5¢ on Tuesday to $1.6809 per gallon — its lowest level since early 2021. Price declines for most oil products have been steeper than those for crude since early December.
Traders have been hyperfocused on negotiations for a ceasefire in the Ukraine war because of its potential to free Russian crude and product supplies from sanctions and end Ukrainian attacks on Russian energy infrastructure. Russia is a key supplier of both crude and products to global markets.
Andy Lipow, president of Houston-based Lipow Oil Associates, said the prospect of a Ukraine peace deal was removing some of the “geopolitical tension” priced into the oil market, with an eye toward the relaxation of Western sanctions on Russian energy supplies.
However, he cautioned that the market has been optimistic about a Ukraine ceasefire before and noted that key issues such as territory and security guarantees for Kyiv remain unresolved.
Still, with a resolution to the nearly four-year war seemingly closer than ever before, traders are starting to imagine an oil market unfettered by the risk of Russian supply disruptions.
Rystad Energy analyst Jorge Leon estimated there are roughly 170 million barrels of Russian oil currently stored on the water that could return to the market if sanctions risks are alleviated.
Even if sanctions relief doesn’t come, Lipow said that Russia would likely find work-arounds to sell this oil to its main customers, China and India, given its past success in evading sanctions.
Collapsing Support
Lipow also noted that crude futures blew past critical technical support levels of $60/bbl for Brent and $56.35/bbl for WTI on Tuesday.
“The sentiment is that we’ve been oversupplied for some time, and now the market is finally catching up,” he said.
Lipow added that the US, Canada, Brazil and Guyana are producing at or near record levels, while the Opec-plus coalition continues to add barrels before its planned pause on production increases in the first quarter of 2026.
Oil analyst Neil Crosby of Sparta Commodities said it “feels like this oil market is able to fade almost anything right now,” noting the limited impact that escalated US military actions toward Opec member Venezuela — including the recent seizure of an oil tanker — are having.
He added that most Venezuelan oil is sold to China but that China’s small “teapot” refiners have ample alternatives, including processing straight-run high-sulfur fuel oil instead of Venezuelan heavy, sour crude.
PVM Oil analyst John Evans agreed that holes in sour crude supply are “likely to be filled by the ramping up of Opec production and, outside of frozen situations and fires, readily available Canadian grades.”
Seeing a Surplus
Forecasters at the International Energy Agency (IEA) and the US Energy Information Administration (EIA) are predicting large oil surpluses next year of 3.84 million barrels per day and 2 million b/d, respectively.
The IEA recently said that global oil inventories surged to four-year highs in October and that early data for November pointed to further builds, especially in non-OECD crude stocks.
Surplus expectations have led the EIA to forecast an average Brent price of $55/bbl in 2026. Brent is on pace to average about $69/bbl this year, which would be 15% lower than the $81/bbl average in 2024.
Analysts say the decline in crude prices will put the market’s focus on Opec-plus and how it responds, particularly if large volumes of oil stored on the water find their way into key Atlantic Basin crude marker pricing hubs in the first quarter of 2026, which could add more downward price pressure.
The current futures market structure doesn’t encourage the commercial storing of oil because the front of the curve is in backwardation, whereby prompt prices are more expensive than those for later delivery.
However, the backwardated curve has flattened considerably in recent trading sessions, and the market for global benchmark Brent moves into gentle contango around April.
Lipow estimated that a month to month contango of about 60¢ would be needed to justify storing oil in onshore tanks on purely economic profitability grounds.
Risk Focus Remains
For now, the oil market is fixated on geopolitics, and Rystad’s Leon said prices will “remain highly sensitive to political headlines” around the Ukraine peace process. But if prices don’t rally on geopolitical headlines, traders say they will be eager to see if Opec-plus intervenes with a market-informed production cut.
Sparta’s Crosby said a small output cut, combined with stronger demand due to lower prices and potential supply disruptions elsewhere, could improve sentiment and turn the market around in a relatively rapid three- to six-month time frame.
Lower WTI prices near $55/bbl could also force some US shale producers, particularly smaller or leveraged ones, to reduce drilling and fracking activity, although Lipow said such a development could take several months to manifest in actual supply.