Oil prices steady amid Russia Ukraine peace uncertainty and supply dynamics

Oil prices held steady on Friday as traders weighed ongoing uncertainty surrounding potential peace negotiations between Russia and Ukraine against supportive supply-side factors, including a larger-than-expected drawdown in US crude inventories.

Brent crude futures closed up 6 cents, or 0.09%, at $67.73 per barrel, while West Texas Intermediate (WTI) crude settled 14 cents higher, or 0.22%, at $63.66.

Both benchmarks posted their first weekly gains in three weeks, with Brent advancing 2.9% and WTI rising 1.4%.

Geopolitical tensions and peace deal prospects

Markets remain cautious as diplomatic efforts to end Russia’s war in Ukraine appear stalled.

US President Donald Trump signalled an interest in facilitating a summit between Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskiy.

However, Russian Foreign Minister Sergei Lavrov dismissed the likelihood of such a meeting, criticising Kyiv’s unwillingness to make concessions.

On the ground, the war showed no signs of easing.

Russia launched an airstrike near Ukraine’s border with the European Union, while Ukraine struck a Russian refinery and the Unecha oil pumping station, a critical node for Europe-bound crude flows.

These developments raised concerns about disruptions, with Russian oil supplies to Hungary and Slovakia potentially facing a five-day suspension.

Analysts at ING noted that the less likely a ceasefire appears, the higher the probability of tougher US sanctions on Russia, adding further uncertainty for energy markets.

Supply-side support: US inventories and rig count

Beyond geopolitics, fundamentals provided near-term support for prices.

US crude stocks fell by 6 million barrels in the week ending August 15, according to the Energy Information Administration (EIA).

The drawdown was significantly larger than analysts’ expectations of 1.8 million barrels, signalling robust demand.

At the same time, energy services firm Baker Hughes reported a decline in US oil and gas rigs, which fell by one to 538 last week, marking the fourth drop in five weeks.

The rig count remains at its lowest since mid-July and reflects a slowing pace of future output growth.

Meanwhile, crude stored on stationary tankers fell by 12% week-on-week to 82.49 million barrels, according to Vortexa, further tightening global supply in the near term.

EIA data also showed US inventories remain below seasonal averages, with crude stocks 5.6% under the five-year norm and distillates 13% lower.

Mixed outlook as surplus fears linger

Despite recent strength, analysts warn that the outlook for oil remains clouded.

Morgan Stanley projected a global crude surplus extending from the fourth quarter of this year through the second quarter of 2026, a forecast that could put pressure on prices.

The bank also highlighted demand levels running below the historical trend growth and an anticipated increase in non-OPEC supply.

OPEC+ production dynamics add another layer of complexity.

The group has endorsed a gradual reversal of its two-year production cuts, with an additional 547,000 barrels per day scheduled to come online from September 1.

This is part of a broader plan to restore 2.2 million bpd of output by late 2026.

Offsetting some of these bearish pressures, US Federal Reserve Chair Jerome Powell signalled the possibility of an interest rate cut next month, which could stimulate economic growth and oil demand.

A weaker dollar, which fell to a 3.5-week low on Friday, also lent support to crude, making commodities cheaper for holders of other currencies.