Oil fell after Ukrainian President Volodymyr Zelenskiy said he agreed to work on a peace plan drafted by the US and Russia aimed at ending the war in Ukraine.
West Texas Intermediate fell 0.5% to settle above $59 a barrel on Thursday, paring some losses from intraday lows following Zelenskiy’s comments.
A peace deal, if followed by the elimination of sanctions on Russian oil over its invasion of Ukraine, could unleash supply from the world’s third-largest producer. Oil markets are already staring down expectations for a surplus as OPEC+ and other producers ramp up output, with the commodity heading for a yearly loss amid concerns of a glut.
The flurry of renewed activity to end the war comes just hours before US sanctions targeting Russia’s two largest oil companies, Rosneft PJSC and Lukoil PJSC, are due to come into effect.
Russia has consistently found a way to sell its sanctioned oil through so-called “shadow” channels. But Moscow’s oil revenue is expected to stagnate amid falling global crude prices, posing a risk to its budget and broader economy.
Still, any accord remains far from certain. The US has signaled to Zelenskiy that he should accept the deal drawn up in consultation with Moscow, according to a person familiar. But the plan outlines known Russian demands for concessions that Kyiv has repeatedly said are unacceptable and that have so far hindered any breakthrough in efforts to reach a ceasefire.
“Notably, Ukraine is reiterating its openness to discuss ending the war, what’s uncertain is Russia’s real interest in ending the war,” said Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security. “It remains to be seen if Russia is interested in ending the war or just in buying time to reduce more extensive sanctions.”
Earlier in the day, oil rose as traders braced for the implementation of sanctions, which had already upended crude flows, most notably to India. The curbs had also forced Lukoil PJSC to seek buyers for its international assets.
But traders are largely “shrugging off” the sanctions for now, according to Ziemba.
“Markets seem to be expecting that Russian fuel supplies continue to make it to market through illicit channels,” she said.
Oil Prices
WTI for December delivery, which expired on Thursday, dropped 0.5% to settle at $59.14 a barrel in New York.
The more active January contract fell 0.42% to settle at $59.00 a barrel.
Brent for January settlement slipped 0.20% to settle at $63.38 a barrel.
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