By: Economy Middle east

Oil prices declined on Monday as Ukraine peace talks progressed toward a resolution, raising prospects for a significant increase in Russian oil supplies to the global market. Brent crude fell 1 cent, or 0.02 percent, to $61.93 per barrel. The declines extend the sell-off from the previous week when both benchmarks fell about 3 percent, marking their lowest settlement levels since late October. Meanwhile, West Texas Intermediate (WTI) crude increased 22 cents, or 0.38 percent, to $58.03 per barrel. Market sentiment was pressured by hopes that a Russia-Ukraine peace agreement could lead to the lifting of sanctions on Moscow, unleashing previously restricted Russian crude into the market and increasing supply dramatically.

Supply growth potential from peace

The driving force behind the recent price movements was strong political momentum spearheaded by President Donald Trump, whose vigorous push for peace talks between Russia and Ukraine has positioned a deal as the quickest path to unlocking substantial volumes of Russian oil that have been stranded due to sanctions. About a third of Russian crude oil, nearly 48 million barrels, has been stranded at sea amid these sanctions. Analysts note that while disruptions caused by recent U.S. sanctions on Russian oil companies Rosneft and Lukoil were tangible, the potential flood of oil unlocked by a successful peace deal would be far more impactful in terms of supply growth.

IEA demand forecast adjustment

In the backdrop of these developments, global oil demand has shown resilience. The International Energy Agency (IEA) recently revised its global oil demand growth forecast upward by 40,000 barrels per day for 2025, now expecting demand to increase by around 790,000 barrels per day compared to the previous year, reaching 103.88 million barrels per day. Despite robust demand growth projections, supply factors remain crucial. The IEA reported a decline in global oil supply in October by 440,000 barrels per day, reflecting challenges in certain production regions. However, long-term supply growth is expected to come from increased production targets set by OPEC+ and emerging producers in regions like the Middle East, North Africa, Latin America, and the Caribbean.

Oil market risk premiums

The Ukraine peace talks have substantial implications beyond geopolitics. Peace would decrease risk premiums in oil markets linked to the war’s impacts, reducing uncertainty and potentially leading to further price moderation. A peace plan reportedly involves Ukraine conceding territories and dropping plans for NATO membership, which aligns with the geopolitical dynamics influencing energy markets currently. Moreover, Russian officials have indicated that U.S. sanctions have yet to affect Russian oil output significantly, underscoring Russia’s capacity to maintain production levels even amid ongoing Western restrictions.