Oil prices fall as Ukraine peace talks, U.S. interest rate decision in focus
Oil prices fell on Tuesday, extending the previous session's losses of up to 2%.
Investors are awaiting developments in Ukrainian peace talks aimed at ending the war, amid concerns about a global supply glut and a critical wait for the upcoming U.S. interest rate decision.
The immediate reasons for the drop in oil prices
Both WTI and Brent crude fell more than a dollar a barrel on Monday, mainly influenced by Iraq's resumption of production at the West Qurna oil field, one of the largest in the world.
This sudden increase in supply is adding to the downward pressure on prices in an already glutted market.
The impact of Ukrainian peace talks on the market
In an influential political development, Ukraine will present a revised peace plan to the United States after intensive talks in London between President Volodymyr Zelensky and the leaders of France, Germany and Britain.
These developments keep oil in a tight trading range with a downward bias, as traders are reluctant to take large positions amid uncertainty.
Analysts comment: "Oil is maintaining a tight trading range until we get a better idea of the course of the talks, but a breakdown could lead to a strong spike in prices.
IEA report and oversupply outlook
The market is awaiting the International Energy Agency's (IEA) monthly oil market report due out on December 11, with preliminary projections suggesting that it could set a record oil market surplus by 2026.
This long-term expectation puts a psychological burden on current prices, limiting any strong upside moves.
Federal Reserve decision: Potential but limited support
All eyes are on the US Federal Reserve's decision on Wednesday, with market expectations pointing to an 87% chance of an interest rate cut of a quarter percentage point.
Lower interest rates are a catalyst for oil demand due to lower borrowing costs, but analysts warn that the impact may be limited for now in the face of supply pressures.
Oil Price Outlook
While markets are cautiously optimistic about the upcoming Fed decision, which could provide short-term support and keep prices at the lower end of the $60-65/bbl range, the overall price structure remains contingent on the outlook for oversupply in 2026.
Market awaits decisive catalysts
In short, oil prices are balanced between several opposing forces: Ukraine peace hopes, spot supply volatility, the US monetary outlook, and a long-term fundamental landscape that points to a supply glut.
The market seems to need a decisive catalyst, whether through sudden political developments or a shift in economic data, to break the current stagnation and head towards a clear directional path.
