U.S. crude oil prices fell nearly 3% on Tuesday to close at the lowest level since early 2021, as a looming surplus and possible peace agreement in Ukraine weigh on the market.
West Texas Intermediate fell 2.73%, or $1.55, to close at $55.27 per barrel, the lowest since February 2021 during the Covid-19 pandemic. Global benchmark Brent lost 2.71%, or $1.64, to settle at $58.92.
U.S. crude has shed about 23% this year in its worst performance since 2018, while Brent is down about 21% for its worst year since 2020.
U.S. gasoline prices have fallen below $3 per gallon to the lowest level in four years in a boost to consumers ahead of the holidays, according to the drivers' association AAA.
Falling oil prices could signal a slowing economy. U.S. job growth totalled 64,000 in November but declined by 105,000 in October. The unemployment rate hit a four-year high of 4.6%.
The oil market is under pressure this year as OPEC+ members have rapidly ramped up production after years of output cuts. Investors are also pricing in the possibility of lower geopolitical risk as President Donald Trump pressures Ukraine to accept a peace agreement with Russia.
The threat of supply disruptions has loomed over the oil market since Russia launched its full-scale invasion of Ukraine in 2022. Kyiv has launched repeated drone strikes on Russian oil infrastructure this year. The U.S. and its European allies, meanwhile, have targeted Russia's crude industry with sanctions.
Ukraine's attacks on oil infrastructure and U.S. sanctions on Russian oil companies would likely be lifted relatively quickly in the event of an agreement, said Jorge Leon, Rystad Energy's head of geopolitical analysis, in a note to clients.
"This would significantly reduce the risk of near-term Russian supply disruptions and allow a sizeable volume of Russian oil currently stored on water to return to the market," Leon said. Russian oil stored on water is currently estimated at around 170 million barrels, according to Rystad.
The end of U.S. sanctions on Russia would also change the incentives for OPEC+, Leon said. The group would likely resume a strategy to retake market share through higher production after recently pressing pause on that approach, he said.
