Oil prices bounce after sharp losses; Ukraine peace talks in focus

Investing.com -- Oil prices edged marginally higher Monday, steadying after last week’s sharp losses as markets weighed the prospects of a potential peace deal in Ukraine.

At 07:50 ET (12:50 GMT), Brent Oil Futures expiring in January edged up 0.2% to $62.08 per barrel, while West Texas Intermediate (WTI) crude futures rose 0.7% to $58.20 per barrel.

Both contracts recorded losses of nearly 3% last week.

Potential Ukraine peace deal weighs

The U.S. and Ukraine have agreed on an “updated and refined” peace framework for the conflict with Russia. Under the revised plan, Kyiv and Washington accepted changes to an earlier 28-point draft, which had been criticised by Ukraine and its allies as too sympathetic to Moscow.

Were a deal to materialise, it could open the door to a resurgence of Russian oil flows due to the removal of sanctions, potentially leading to a higher supply surplus.

That said, "it’s unlikely a deal will be reached anytime soon. Likely sticking points include Ukraine having to give up territory and cap its military size. In addition, Ukraine would want clear, explicit security guarantees as part of any deal," ING analysts said in a note.

Sanctions on Russian oil firms take effect

At the same time, attention remains focused on the new U.S. sanctions on Russian oil firms Rosneft and Lukoil, which came into effect on Nov. 21.

Those measures cut off major pathways for Russian crude exports and restrict global buyers and banks from transacting with these giants. 

However, the sanctions may also support prices via the risk of a tighter supply, even as peace-deal speculation serves to push them down.

"Developments related to a potential peace agreement are important for the oil market, particularly amid significant uncertainty about the impact of recently imposed sanctions on Russia’s Rosneft and Lukoil," ING analysts wrote.

"Clearly, a peace deal increases the likelihood that sanctions will be lifted, or at least not enforced strictly," they added.

Brent to average $60/bbl next year - BofA

Looking forward into 2026, oil demand may grow by one million barrels a day (b/d), Bank of America estimated, in a note, but with non-OPEC+ supply set to rise by around 0.8 million b/d and OPEC+ poised to continue its fight for market share, a looming surplus of 2mn b/d should result in Brent and WTI prices averaging just $60/bbl and $57/bbl in 2026, respectively.

Still, geopolitics remain a risk in judging the supply levels next year, as Venezuela & Iran produced 2.2mn b/d below their current levels at the start of 2021, and Russian supply could fall short of expectations.

As world GDP expands by 3.3% in 2026, according to BofA Global Economics, oil demand growth should hold up.

Three factors may floor Brent prices at around $50/bbl if downside risks materialize, BofA added.

“First, it is not in OPEC+’s self-interest to drive prices much lower due to rising borrowing requirements. Second, US shale oil production is poised to stagnate at $60/bbl Brent and could contract materially if prices drop another $10/bbl. Three, there is still ample storage capacity and China should continue to build strategic crude inventories through 2026,” BofA added.

Ayushman Ojha contributed to this article