Oil market is currently caught between two distinct scenarios: the increasing supply threat from Venezuela and the prospect of a peaceful deal between Russia and Ukraine.
One hand, the possibility of an agreement on peace in the Russia-Ukraine war may lead to the rapid removal of sanctions against Russian oil.
The market would be flooded with this product, which in turn would drive down the price.
The US President Donald Trump’s decision to ban sanctioned oil tanks from entering or leaving Venezuela has added another layer of complexity to the current situation.
Analysts say that the market for oil will remain volatile and sensitive unless more clarity is provided regarding a potential peace agreement between Russia and Ukraine.
Brent crude oil dropped to $60 a barrel for the first time in more than seven months this morning.
Similarly, West Texas Intermediate closed Monday’s trading at its lowest level since February 2021.
Carsten Fritsch said that the new hope for a quick end to the conflict in Ukraine and the easing of US sanctions on the Russian oil industry are generating selling pressure.
The Russian oil in the tankers will then be easier to find and buyers, as well as an end to mutual attacks against energy infrastructure.
What about more Russian oil?
According to Jorge Leon of Rystad, the head of geopolitical analyses, a ceasefire is likely to lead to an immediate lifting of US sanctions against Russian oil companies. However, European sanctions are expected to come off more gradually.
In an email, he stated that the cessation would also end the attacks against Russian oil infrastructure.
The risk of Russian supply disruptions in the near future would be significantly reduced. A large volume of Russian crude oil, currently stored under water (estimated to be around 170 million barrels), could also return to the marketplace.
Experts say that the prospect of a ceasefire between Russia and Ukraine will intensify downward pressure on crude oil prices.
In a recent note, Warren Patterson, ING Group’s head of commodities, stated that the oil surplus would peak in the first quarter 2026.
In 2026 however, as inventories are expected to grow, and every quarter next year will be in excess, oil prices should continue to rise.
Source: Rystad Energy
OPEC conundrum
Rystad’s Leon stated that if sanctions were lifted, the incentives in OPEC+ would change.
It would be more likely that the group will return to its market share strategy after the planned pause scheduled for the first quarter 2026.
The Russians could continue to increase production and discounts would probably narrow with normalization of trade.
Another point of view is that OPEC’s production quotas might not allow Russia to produce as much oil, even with relaxed sanctions.
Commerzbank’s Fritsch stated, “We’ve already stressed several times the fact that a substantial expansion in oil supply from Russia will be unlikely as Russia is bound to OPEC+ targets and already produces close to their own production limits.”
The current weakness in prices is therefore excessive.
Venezuelan supply risks
The risks associated with the Russian oil supply are well-known, but there are other, less talked about, significant risks that are related to Venezuelan supply. Both of these pose threats to future prospects.
In early trading, WTI oil prices are approximately 1.6% higher.
The rise in oil prices follows Trump’s decision to ban sanctioned tankers from entering and leaving Venezuela.
The US seized an oil tanker last week off the coast Venezuela.
Venezuela exported approximately 600,000 barrels of oil per day in November.
The latest developments suggest that the volumes of oil will likely fall. Patterson, of ING, said that the bulk is sent to China.
WTI crude was $56.06 a barrel at the time this article was written, an increase of 1.6%. Brent oil, at $59.86 per barrel was 1.6% more expensive.
Brent oil prices fell below $60 per barrel for the first day in over seven months on Tuesday.
Experts urge caution among investors, as prices are likely to follow the current market fundamentals.
Over the last year, there have been several occasions when markets were close to putting a price on a deal for peace, but then talks stalled. While the optimism that is affecting prices now will continue to do so as long as there are tangible steps taken toward a lasting and credible agreement, Leon explained.
Markets are expected to be highly responsive to headlines in the media until then.
The post Oil caught in the middle of geopolitical tensions as analysts see volatile markets may be updated as new developments unfold.
