On Tuesday, December 16, the price of crude oil in the United States fell by nearly 3%, hitting its lowest level since the beginning of 2021. This drop was attributed to the imminent oversupply and the potential peace agreement in Ukraine, adding pressure to the oil market.
The benchmark U.S. crude oil, West Texas Intermediate (WTI), fell by 2.73%, or $1.55 per barrel, closing at $55.27 per barrel, the lowest level since the COVID-19 pandemic in February 2021.
The global benchmark Brent crude oil price also dropped by 2.71%, or $1.64 per barrel, closing at $58.92 per barrel, reaching its lowest point in four and a half years.
Analysts pointed out that energy traders are preparing for a potential peace agreement between Russia and Ukraine, which could further exacerbate the oversupply situation in the oil market.
Due to the significant amount of oil flooding the market, both Brent crude and WTI are expected to experience annual declines of over 20%. The price of U.S. crude oil has dropped by about 23% this year, marking its worst performance since 2018, while Brent crude has fallen by around 21%, its poorest performance since 2020.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, known as “OPEC+,” are rapidly easing oil production cuts by adding more barrels of oil to the market each month. Other oil-producing countries outside the Americas are also increasing their output.
From April to December, OPEC+ member countries increased daily production by 2.9 million barrels, with major oil-producing country Saudi Arabia aiming to regain market share and pricing power from Western countries. In the U.S., the Energy Information Administration (EIA) predicts that domestic crude oil inventories will continue to grow throughout 2026.
Although OPEC recently decided to maintain production levels in the first quarter of next year, the International Energy Agency (IEA) stated last week that it expects a daily oversupply of 3.8 million barrels in 2026.
On the other hand, since Russia’s full-scale invasion of Ukraine in February 2022, the threat of disruptions in oil supply has loomed over the oil market. Ukraine has launched several drone attacks on Russian oil infrastructure this year. Meanwhile, the U.S. and its European allies have imposed sanctions on Russia’s oil industry. However, with the potential for a Russia-Ukraine peace agreement in the near future, traders are now concerned about an oversupply of oil.
At sea, the amount of crude oil being transported on oil tankers has exceeded 1 billion barrels. This number has been steadily rising in recent months as sellers struggle to find buyers willing to purchase the excess oil.
According to data from the American Automobile Association (AAA), gasoline prices in the United States have dropped below $3 per gallon, the lowest level in four years, in an effort to boost consumer spending before the holidays.