Will Falling Oil Prices Deepen as Peace Hopes and Weak Demand Collide?

Source: Kapitales Research

Highlights:

• Oil prices fell for a second session as hopes for progress toward a Russia–Ukraine peace deal raised expectations of eased sanctions and higher supply.
• At the time of writing, Brent crude was priced at US$60.21 a barrel, while WTI stood at US$56.52, adding to the recent decline.
• Weak Chinese economic data added to demand concerns, reinforcing a bearish outlook for global oil markets.

Oil Extends Losses on Geopolitical Optimism

Oil prices moved lower for a second straight session as optimism grew around a potential Russia–Ukraine peace agreement, raising expectations that sanctions on Russian energy exports could eventually be eased. At the time of writing, Brent crude futures were down 0.6 per cent at US$60.21 a barrel, while US West Texas Intermediate (WTI) crude slipped 0.5 per cent to US$56.52 a barrel. The decline added to losses from the previous session, keeping pressure on energy markets.

Peace Talks Raise Supply Concerns

Market sentiment shifted after reports of progress in diplomatic discussions aimed at ending the war in Ukraine. The United States has indicated it could offer NATO-style security guarantees to Kyiv, while European negotiators signalled momentum in talks. Although key issues such as territorial concessions remain unresolved, the developments fuelled optimism that a negotiated outcome may be drawing closer. Analysts noted that any move toward peace could ultimately lead to the lifting of recent US sanctions on Russian oil companies. Such an outcome would add more supply to an already well-stocked global market, amplifying downward pressure on prices.

China’s Weak Data Adds Demand Worries

Adding to the bearish tone, fresh economic data from China heightened concerns about global demand. Official data revealed that factory output growth eased to a 15-month low, while retail sales rose at their slowest rate since late 2022. At the time of writing, analysts warned that China’s strategy of leaning on exports to offset sluggish domestic demand may be losing effectiveness.

As the world’s largest oil importer, a cooling Chinese economy poses a significant risk to consumption growth. This is compounded by the rapid adoption of electric vehicles, which is already reducing petroleum demand across the country.

Other Factors Offer Limited Support

Some supply-side risks remain, including geopolitical tensions involving Venezuela after the US seized an oil tanker off its coast last week. However, these concerns have so far failed to offset the combined impact of peace-related optimism and soft demand signals. With supply fears easing and demand outlooks weakening, the key question now is whether oil prices can find a floor—or if further downside lies ahead as global uncertainties persist.

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