The oil price drops by 2% due to the threat of supply surpluses and the hope for a peace agreement with Ukraine

Oil prices fell more than 2% on Friday as investors factored in a looming global supply glut, while also keeping an eye on a potential peace deal in Ukraine ahead of this weekend’s talks between Ukrainian President Volodymyr Zelenskiy and US President Donald Trump. Brent crude futures fell $1.60, or 2.57%, to $60.64 a barrel. US. West Texas Intermediate (WTI) crude fell $1.61, or 2.76%, to $56.74. While supply disruptions have helped oil prices recover from their near five-year low on Dec. 16 in recent sessions, they are on track for their steepest annual decline since 2020. Brent and WTI have fallen 19% and 21% respectively this year as rising crude production fueled concerns of an oil glut next year. “Geopolitical premiums have provided price support in the near term, but have not materially changed the underlying oversupply story,” analysts at Aegis Hedging said in a note on Friday. Global oil supply will exceed demand by 3.84 million barrels per day next year, according to figures from the December oil market report from the Paris-based IEA.

EYES ON RUSSIA-UKRAINE PEACE PROCESS Investors are looking forward to developments in the peace process between Russia and Ukraine and the possible impact on future oil prices, as a peace deal could lead to the lifting of international sanctions on Russia’s oil sector.Zelenskiy will discuss territorial issues with Trump in Florida on Sunday, the main stumbling block in talks to end the war, as a 20-point peace framework and an agreement on security guarantees are nearing completion.

Announcing the meeting, Zelenskiy said that “a lot can be decided before the new year.” The Ukrainian president also told Axios that he would be willing to call a referendum on an agreed peace framework if Russia agrees to a ceasefire.

A foreign policy aide to Russian President Vladimir Putin spoke to members of the US government after Moscow received US proposals on a possible Ukrainian peace deal, the Kremlin said on Friday.

As for oil prices, “negative impacts from increased global oil storage and modest progress in Ukraine-Russia peace talks persist,” said Dennis Kissler, senior vice president of trading at BOK Financial. The White House also ordered its military forces to focus on a “quarantine” of Venezuelan oil for at least the next two months, indicating that Washington is currently more interested in using economic rather than military means to pressure Caracas.

“The global impact on crude oil prices appears minimal at this time,” Kissler said of U.S. actions to intercept sanctioned oil tankers leaving and entering Venezuela.

Despite the high risk in Venezuela, the broader market remains focused on the growing global surplus, Aegis Hedging analysts said.