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Oil prices retreated more than 1% on Tuesday as signals of progress in US-led diplomatic efforts to end the war in Ukraine raised the prospect of sanctions relief for Russian energy exports. The potential return of additional supply comes at a time when the market is already grappling with expectations of a surplus next year.

Brent crude fell 89 cents, or 1.4%, to $62.48 a barrel.

WTI slid by the same amount, or 1.5%, to $57.95. Both benchmarks touched their lowest intraday levels since 22 October.

Kyiv said discussions on a revised peace plan are continuing with Washington, although several sensitive points remain unresolved. US officials have expressed cautious optimism about the negotiations, even as Russia’s stance on the latest proposal is still unclear.

A breakthrough would mark a major shift for the oil market. Russia, one of the world’s largest producers, remains constrained by extensive sanctions imposed by the US, European Union and UK. 

It is uncertain, however, whether Moscow will agree to the amended plan, which was adjusted after input from European officials.

A peace agreement could also enable Russia to lift output to its initially agreed OPEC+ quota. Analysts expect global crude supply growth in 2026 to outpace demand, with some forecasting a surplus of at least 2 million barrels per day next year and limited prospects for a return to deficits even by 2027.

Written by: Farid Muzaffar