Peace talks, sanctions drive Brent crude below $60/bbl for the first time in 7 months

Brent oil prices fell below $60 per barrel on Tuesday, slipping more than 1.5% as hopes for a Russia-Ukraine peace deal strengthened. 

Brent crude oil prices dropped under $60 per barrel this morning, marking the first such occurrence in over seven months. 

Furthermore, the West Texas Intermediate price concluded Monday's trading at its lowest point since February 2021.

“Selling pressure is being generated by new hopes for an end to the war in Ukraine in the near future and the accompanying easing or lifting of US sanctions against the Russian oil sector,” Carsten Fritsch, commodity analyst at Commerzbank AG. 

Russia-Ukraine peace talks progress

Talks on Monday aimed at ending Russia's war in Ukraine saw progress, according to European negotiators, fueling optimism that the conflict might soon conclude.

This follows an offer from the US to extend NATO-style security guarantees to Kyiv.

Deputy Foreign Minister Sergei Ryabkov stated that Russia is unwilling to make any territorial concessions in the negotiations aimed at ending the Ukraine war, according to the state news agency TASS.

Sanctions imposed by US President Donald Trump on Russia's two largest oil companies, which took effect on November 21, pose a risk to global oil supplies. 

Since the announcement of these sanctions, it has been observed that buyers in key markets like China and India are showing increased hesitancy in purchasing Russian oil.

“If a peace agreement is reached in Ukraine in the course of the coming year, Trump could also lift these sanctions again,” Barbara Lambrecht, commodity analyst at Commerzbank, said.

The excess oil will then be available to the world, which is likely to exert further pressure on prices. 

Export markets

Given the considerable supply risk stemming from sanctions against Russia, oil markets will be closely monitoring developments.

“While Russian seaborne oil exports have held up well since the imposition of sanctions on Rosneft and Lukoil, this oil is still struggling to find buyers,” Warren Patterson, head of commodities strategy at ING Group, said in a note. 

India's imports of Russian crude oil are expected to significantly decrease this month, reportedly dropping to approximately 800,000 barrels per day from around 1.9 million bpd in November, according to ING. 

India has been a major purchaser of Russian oil since the start of the Russia-Ukraine conflict.

Refined products market weighs on prices

The broader pressure experienced in oil markets recently may be partly attributable to the sustained weakness observed in the refined products market, according to Patterson. 

In November, refinery margins saw a significant increase.

This surge was driven by anxieties regarding the effect of sanctions on the supply of refined products, coupled with continued drone attacks by Ukraine targeting Russian refinery infrastructure.

Refinery outages and the scheduled maintenance season are occurring simultaneously with the existing concerns. 

This convergence has notably impacted the middle distillate market, as demonstrated by the ICE gasoil crack reaching up to $38 per barrel in November, driven by significant speculative purchasing.

Speculators, however, have been intensely selling in the gasoil market since the end of November.

The crack has dropped to around $23 per barrel.

Speculators' net long position in ICE gasoil fell to 58,578 lots as of last Tuesday, a significant decrease from the peak of 102,195 lots recorded on November 25, Patterson said.