Oil prices dropped below US$60 per barrel on Wednesday, December 17, 2025, marking their lowest level since February 2021, as renewed hopes for a resolution to the Ukraine conflict softened geopolitical risk premiums and dampened supply concerns
European natural gas prices mirrored the decline, falling below €27 per megawatt-hour, approximately 16 per cent lower than in mid-November, according to market data from the Intercontinental Exchange.
The latest slump extends a two-week retreat that has pushed Brent crude futures down more than 20 per cent, reflecting investor optimism about potential de-escalation in Eastern Europe and improved global energy supply prospects.
Financial markets responded to reports from Berlin that the United States has offered Ukraine NATO-like security guarantees as part of ongoing peace discussions, a move that has sparked cautious optimism across European capitals.
The proposed agreement — seen by analysts as a framework similar to NATO’s Article 5, which enshrines mutual defence — comes alongside remarks from President Donald Trump, who told reporters that “the conflict may be closer to resolution than ever”.
The developments have prompted analysts to reassess the geopolitical risk premium embedded in oil and gas prices over the past two years.
According to Jorge Leon, head of geopolitical analysis at Rystad Energy, a ceasefire could have immediate consequences for global oil balance and pricing dynamics.
“In the event of a ceasefire, US sanctions on Russian oil companies would likely be lifted relatively quickly, while European sanctions would probably be removed more gradually,” said Leon.
“At the same time, attacks on Russian oil infrastructure would come to an end.
“This would significantly reduce the risk of near-term Russian supply disruptions and allow a sizeable volume of Russian oil currently stored on water (estimated at almost 170 million barrels) to return to the market.”
He added that the easing of Western restrictions could alter the dynamics within the OPEC+ alliance, which includes Russia and key Middle Eastern producers such as Saudi Arabia and the United Arab Emirates.
“The lifting of sanctions would also change incentives within the OPEC+ alliance, making it more likely that the group resumes a market-share strategy after the planned pause in the first quarter of 2026,” Leon continued.
“Russia would be able to continue increasing production, and the discounts on Russian barrels would likely narrow as trade flows normalise.”
Still, he cautioned against excessive optimism, stating: “That said, caution is still warranted.
“Over the past year, markets have come close to pricing in a peace deal several times, only for talks to stall.
“As a result, while the current optimism is clearly weighing on prices, its durability will depend on tangible progress toward a credible and lasting agreement.
“Until then, markets are likely to remain highly sensitive to political headlines.”
The fall in energy prices comes as Europe enters the winter heating season with storage levels above 95 per cent capacity, according to data from Gas Infrastructure Europe.
Milder weather forecasts and strong renewable generation have further eased supply pressures that once threatened to reignite inflation across the continent.
The European benchmark TTF gas price briefly traded below €27/MWh on Wednesday morning, its lowest since early 2021, reinforcing the broader narrative of market stabilisation following two volatile years.
The European Commission has credited coordinated energy procurement and diversification efforts — including increased LNG imports from the United States and Qatar — with shielding the bloc from shortage risks.
Meanwhile, global oil traders are closely monitoring upcoming OPEC+ meetings and US inventory reports for signs of policy or output adjustments.
Analysts forecast that a sustained fall below US$60 could prompt producers to reconsider planned production increases should peace negotiations falter or demand slow further.
As political developments continue to shape sentiment, market watchers suggest that oil prices may remain volatile but with a downward bias as long as momentum toward a ceasefire continues.
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