The US oil benchmark fell to its lowest level since February 2021, with traders weighing renewed signs of optimism surrounding a deal to end the war in Ukraine and mixed economic data from China.
West Texas Intermediate settled below $57 a barrel in thin trading ahead of the Christmas and New Year holidays, sliding as stocks wavered. US negotiators offered more substantial security guarantees to Kyiv in a renewed bid to clinch a deal, though the effort still appeared part of a bid to pressure Ukrainian President Volodymyr Zelenskiy on territory. An agreement to end the conflict could lift restrictions on the flows of Russian oil, limiting disruptions in an already well-supplied market.
The potentially positive developments in the talks added to earlier bearish momentum on signs of weakness in China’s economy that could limit a key source of demand for crude, outweighing news that the country’s apparent oil demand and refining activity increased in November.
Oil is set for an annual loss, with supply set to exceed demand this year and next. Concerns about a glut are showing up in the key Middle Eastern crude market, and trend-following commodity trading advisers were 100% short in both Brent and WTI on Monday, according to data from Bridgeton Research Group.
“Crude continues to trade heavy as headlines this morning suggest there’s growing consensus around elements of a potential Russia-Ukraine ceasefire,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group. “While a ceasefire wouldn’t trigger a sudden wave of Russian barrels returning to market, it would materially reduce the risk of future supply disruptions.”
Still, the fact that some details of a peace deal remain unclear could offer support for prices, Babin said.
And there are other geopolitical inputs at play. Even as US-Ukraine talks advanced, Ukraine has intensified attacks on Russia’s Caspian region, hitting energy production and refining assets. Meanwhile, the market is also weighing attacks on shipping in the Black Sea and the risk of US military action in Venezuela after the Trump administration detained a supertanker last week.
Oil Prices
West Texas Intermediate for January delivery fell 1.1% to settle at $56.82 a barrel in New York.
Brent for February settlement dropped 0.92% to settle at $60.56 a barrel, the lowest close since May.
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