U.S. oil drops below $55, lowest level since early 2021

U.S. crude oil prices fell nearly 3% on Tuesday, closing at their lowest level since the beginning of 2021; As the growing surplus and a possible peace agreement in Ukraine put pressure on the market.

West Texas Intermediate It fell 2.73%, or $1.55, to close at $55.27 a barrel. This was the lowest level since the Covid-19 pandemic in February 2021. Global benchmark Brent lost 2.71%, or $1.64, to settle at $58.92.

While US crude oil lost approximately 23% this year, its worst performance since 2018, Brent experienced its worst year since 2020, with a loss of approximately 21%.

Gasoline prices in the United States fell below $3 per gallon, the lowest level in four years, according to drivers’ association AAA, in support of consumers ahead of the holidays.

Falling oil prices could be a signal of a slowing economy. U.S. job growth reached 64,000 in November but fell by 105,000 in October. The unemployment rate reached its highest level in the last four years at 4.6 percent.

The oil market is under pressure this year as OPEC+ members rapidly increase production after years of production cuts. Investors are also pricing in the possibility that geopolitical risk will ease as President Donald Trump pressures Ukraine to accept a peace deal with Russia.

Since Russia began its full-scale invasion of Ukraine in 2022, the threat of supply disruptions has begun to loom in the oil market. Kiev has launched repeated drone attacks on Russia’s oil infrastructure this year. Meanwhile, the United States and its European allies targeted Russia’s crude oil industry with sanctions.

Ukraine’s attacks on oil infrastructure and U.S. sanctions on Russian oil companies would likely be lifted relatively quickly if there was a deal, Jorge Leon, Rystad Energy’s head of geopolitical analysis, said in a note to clients.

“This will significantly reduce the risk of Russian supply disruptions in the near term and allow large amounts of Russian oil currently stored above water to return to the market,” Leon said. Russian oil stored above water is currently estimated at around 170 million barrels, according to Rystad.

Leon said that the end of US sanctions against Russia will also change the incentives for OPEC +. He said the group will continue its strategy of recapturing market share through higher production after recently pausing this approach.