Crude surplus looms

Russia/Ukraine peace prospects become major catalyst for crude markets

Steve Sutherlin

for Petroleum News

Alaska North Slope crude gained 84 cents on Nov. 24 to close at $63.89 per barrel, while West Texas Intermediate gained 78 cents to close at $58.84, and Brent gained 81 cents to close at $63.37.

The day's gains broke a 3-day losing streak prompted largely by reopened negotiations announced Nov. 19 for peace in the Russia/Ukraine war.

A peace deal could unleash currently restricted Russian crude exports, tipping world markets to oversupply.

The Nov. 24 gains were fanned by rising optimism for a December interest rate cut by the U.S. Federal Reserve -- lower rates could spark economic activity to boost oil demand, and by rising pessimism for prospects of peace in Ukraine.

On Nov. 25, however, crude futures dove lower after ABC News and CBS News reported that a U.S. official said Ukraine had agreed to terms of a peace deal. WTI and Brent each shed 89 cents to close at $57.95 and $62.48 respectively.

A Nov. 25 closing price for ANS was unavailable at Petroleum News press time on Nov. 26.

On Nov. 24, ANS closed at a $5.05 premium over WTI, and at a 52-cent premium over Brent.

Ukrainian President Volodymyr Zelenskiy may visit the United States within days to finalize a deal with President Donald Trump to end the war, Kyiv's national security chief Rustem Umerov said -- quoted in a Reuters report.

"Some media outlets are reporting that Ukraine agreed to a peace deal," UBS analyst Giovanni Staunovo said. "That said, it needs two to tango, and it remains unclear if Russia agrees as well."

In a market already weakened by oversupply fears, the fate of the conflict in Ukraine has become a potent catalyst.

"In the short term, the key risk is oversupply and current price levels seem vulnerable," Priyanka Sachdeva, senior market analyst at Phillip Nova, said Nov. 24. "The oil market is in a tug-of-war between a caution-driven supply overhang and demand hopes predicated on easier monetary policy."

ANS fell 74 cents on Nov. 21 to close at $63.05, as WTI plunged $1.08 to close at $58.06, and Brent fell 82 cents to close at $62.56.

On Nov. 20, ANS fell 62 cents to close at $63.79, WTI slipped 30 cents to close at $59.14, and Brent edged 13 cents lower to close at $63.38.

Nov. 19 was the day a new peace proposal for the Russian/Ukraine war surfaced, taking crude prices sharply lower. ANS plunged $1.57 to close at $64.41, WTI plunged $1.30 to close at $59.44, and Brent plunged $1.38 to close at $63.51.

Oversupply on track to grow

Crude production is growing at a record rate to overtake demand, and that dynamic could continue through 2027, according to Natasha Kaneva, a JP Morgan strategist quoted in a Nov. 24 Barron's article. If the trend continues, crude prices could plummet into the $30s per barrel by year end 2027. Under $40, few U.S. projects would be profitable.

Kaneva sees it unlikely that oil falls to that level, and more likely low oil prices cause producers to cut drilling or convince OPEC and its allies to reduce exports. Her price target for Brent is $58 in 2026 and $57 in 2027.

Oil supply is rising more than twice as fast as demand, outpacing demand by some 1.3 million barrels per day in 2025. In 2026, Kaneva estimates oil oversupply will jump to 2.8 million bpd, and 2.7 million bpd in 2027.

"Adjustments are expected on both the supply and demand sides; however, the greatest burden of rebalancing will almost certainly fall on supply," she said, adding that around $51 Brent, many U.S. shale producers would have to slow output because they wouldn't be making enough money.