Oil prices fell more than 2% on Friday (December 26th) as investors weighed the threat of a global oversupply, while also keeping an eye on a potential Ukraine peace deal ahead of talks later this week between Ukrainian President Volodymyr Zelenskiy and U.S. President Donald Trump.

Brent crude futures fell $1.60, or 2.57%, to $60.64 per barrel. U.S. West Texas Intermediate (WTI) crude fell $1.61, or 2.76%, to $56.74.

Although supply disruptions have helped oil prices recover in recent sessions from a nearly five-year low hit on December 16th, they are on track for their sharpest annual decline since 2020. Brent and WTI are down 19% and 21%, respectively, so far this year, as rising crude production raises concerns about a supply glut heading into next year.

"The geopolitical premium has provided short-term price support, but has not significantly changed the underlying oversupply narrative," Aegis Hedging analysts said in a note on Friday.

Global oil supply next year will exceed demand by 3.84 million barrels per day, according to figures from the Paris-based IEA's December oil market report.

ATTENTION TO THE RUSSIA-UKRAINE PEACE PROCESS

Investors are closely monitoring developments in the Russia-Ukraine peace process and their potential impact on future oil prices, as a peace agreement could lead to the lifting of international sanctions on Russia's oil sector.

Zelenskiy will discuss territorial issues, a key obstacle in talks to end the war, with Trump in Florida on Sunday, as a 20-point peace framework and security guarantee agreement nears completion.

Announcing the meeting, Zelenskiy said that "a lot can be decided before the New Year."

The Ukrainian president also told Axios that he is willing to hold a referendum on the agreed peace framework if Russia agrees to a ceasefire.

A foreign policy aide to Russian President Vladimir Putin spoke to members of the U.S. administration after Moscow accepted a U.S. proposal on a possible Ukraine peace deal, the Kremlin said on Friday.

For oil prices, "negative factors remain in the form of rising global oil storage and little progress in Ukraine-Russia peace talks," said Dennis Kissler, senior vice president of trading at BOK Financial.

The White House also ordered its military to focus on "quarantining" Venezuelan oil for at least the next two months, suggesting that Washington is currently more interested in using economic rather than military means to pressure Caracas.

"The global impact on crude oil prices looks minimal at this point," Kissler said of the U.S. action to intercept sanctioned oil tankers leaving and entering Venezuela.

Despite the major risks related to Venezuela, the broader market remains focused on the growing global surplus, according to Aegis Hedging analysts. (alg)

Source: Reuters.com