Crude oil prices fell to their highest levels since the pandemic downturn in early 2021 as a widely expected supply glut gained momentum and peace talks made progress in the conflicts between Russia and Ukraine.
Futures for international pricing benchmark Brent crude (BZ=F) fell 2.2% to below $59.30, while U.S. benchmark West Texas Intermediate (WTI) crude (CL=F) fell 2.4% to below $55.50. Both energy products hit their highest levels since February 2021 on Tuesday morning.
There were signs of increasing downward pressure on the oil market, with Dubai crude prices, key pricing benchmarks in Asian markets, and U.S. Gulf Coast crude prices both in contango on Tuesday morning, Bloomberg data showed.
Contango is a market pattern in which futures prices further along the curve are higher than nearby futures or spot prices as storage, funding and arbitrage costs become higher and traders seek looser markets in the future.
Crack spreads, or the price difference between oil and its derivatives, such as jet fuel or gasoline, have also tightened over the past month as prices for crude oil derivatives, which have been supporting overall pricing, have fallen.
Due to oversupply in the market, both Brent crude oil and WTI crude oil will suffer annual declines of more than 20%. The OPEC+ cartel has been slashing production cuts and increasing the amount of oil it adds to the market each month, while other suppliers outside the Americas have also been ramping up production.
Commodity strategists at JPMorgan (JPM) and Goldman Sachs (GS) expect Brent crude oil prices to fall above $50 a barrel in 2026, reaching levels not seen since the outbreak, when a brief overnight stop of cars on the road caused prices to fall. If the OPEC+ cartel, which has agreed to suspend output cuts in the first quarter, does not shift to cutting production and other oil-producing countries do not slow down the pace of production cuts, strategists predict that oil prices could fall to $40 or even $30 a barrel, which would be catastrophic for the industry.
Meanwhile, peace talks in Ukraine appeared to be making progress, with Ukrainian leader Volodymyr Zelensky saying he had reached a security guarantee deal with the United States to end the war. Russian President Vladimir Putin, however, has not agreed to make any concessions.
