Oil's Peace Deal Paradox: Why Crude Prices Are in Limbo

WTI crude took a hit on Friday—down 1.59% to close the week lower, with gasoline following suit at -1.62%. The culprit? Peace talks. When Ukrainian President Zelenskiy hinted at cooperating on a US-Russia peace plan, traders immediately dumped long positions, pushing crude to 4-week lows.

But here’s the twist: the deal fell apart just as fast. Ukraine and its European backers rejected key points of the proposal, sending oil prices bouncing back from their worst levels. Welcome to energy markets in 2025—geopolitical whiplash included.

The Real Pressure: OPEC’s Supply Surplus

Forgetting peace talks for a moment, the fundamentals are ugly. OPEC just flipped its Q3 forecast from a 400,000 bpd deficit to a 500,000 bpd surplus. Why? US shale production exceeded expectations (now pegged at 13.59 million bpd for 2025), and OPEC members themselves pumped more crude.

Meanwhile, the IEA is sounding alarms about a record 4.0 million bpd global surplus hitting in 2026. OPEC+ tried to manage expectations by pausing production hikes in Q1-2026, but the damage is done—the market knows oversupply is coming.

Russia’s Export Crunch: The Wildcard

There’s one thing propping up prices: Russia’s refining crisis. Ukraine has systematically dismantled Russian oil infrastructure—knocking out 13-20% of refining capacity by October and crippling 1.1 million bpd of output. New US-EU sanctions on Russian tankers and oil companies aren’t helping either.

Vortexa data shows Russian oil exports crashed to 1.7 million bpd in mid-November—the lowest in 3+ years. This supply shock is literally the only thing keeping crude from cratering further.

Inventory Reality Check

US crude inventories are running 5% below the 5-year average, and distillates are down 6.9%—tight by historical standards. But this matters less when you’ve got a looming surplus. American production actually dipped to 13.834 million bpd last week after hitting a record high the week prior. Active oil rigs remain weak at 419, down sharply from the 627 peak in December 2022.

The Verdict

Crude is stuck in a tug-of-war: geopolitical risk (Russia sanctions, Iran tanker seizures, Venezuela tensions) versus structural oversupply. Short-term, Ukraine updates and sanctions dominate headlines. Long-term? The surplus wins. Don’t expect a strong oil market in 2026 unless something breaks supply-side.