WTI oil closed down more than 2% as investors watched for an oversupply of oil and peace in Ukraine.

 

Although supply disruptions helped oil prices recover in recent days after plummeting to near their lowest levels in almost five years on December 16, prices are still on track for their sharpest yearly decline since 2020. Brent and WTI crude contracts have fallen 19% and 21%, respectively, this year as increased crude oil production raises concerns about an oversupply next year.

The International Energy Agency (IEA) December oil market report indicated that global oil inventories will exceed demand by 3.84 million barrels per day next year.

Investors are also watching the progress of the Russia-Ukraine peace process and its impact on future oil prices, as a peace agreement could lead to the lifting of international sanctions on Russia's oil industry.

On Saturday, Russia launched hundreds of missiles and drone strikes in Kyiv and other parts of Ukraine, ahead of President Volodymyr Zelenskyy's statement that a crucial meeting would be held with U.S. President Donald Trump to plan an end to the nearly four-year-long war.

Zelenskyy described the massive overnight attack as a significant blow. He said it involved approximately 500 drones and 40 missiles, causing power and heating outages in parts of the capital. This was Russia's retaliation against Washington-mediated peace efforts.

Zelensky and Trump will discuss territorial issues, a major obstacle to ending the war, in Florida this Sunday (December 28). A 20-point peace framework and security agreement are nearing completion, and the Ukrainian president indicated that many issues could be decided before the new year.

Russian foreign policy officials under President Vladimir Putin held talks with US officials after Russia received a proposal from the US regarding a peace deal for Ukraine.

The White House continues to order the military to focus on blocking Venezuelan oil for at least the next two months, indicating that the US is more interested in economic rather than military measures to pressure Venezuela.

Analysts say that despite the risks to Venezuelan oil, the overall market remains focused on the increasing global oil surplus.