Oil

extended declines, with

Brent crude

slipping below US$60 a barrel for the first time since May, as indications grow that supply is outpacing demand against the backdrop of efforts to end the war in Ukraine.

The global benchmark fell as much as 1.4 per cent, while U.S. crude futures extended declines from the weakest close since 2021.

Signs of weakness are mounting across the oil market, with Middle Eastern crude prices briefly entering a bearish contango pattern early on Tuesday. The same has happened with some barrels sold on the U.S. Gulf Coast. Other parts of the market, however, remain in the opposite backwardation pattern that still indicates supply tightness.

Oil is on track for a yearly loss with supply set to exceed demand both this year and next thanks to growth in production from within the

Organization of the Petroleum Exporting Countries

and a host of nations outside the group in the Americas. The

International Energy Agency

estimates that the size of the surplus next year will be the largest on record.

The decline will bring some relief to central bankers looking to cut

interest rates

next year by offering a reprieve from inflationary pressure. However, it also threatens the budgets of oil producer nations and companies alike.

The drop in recent days has been compounded by the prospect of an end to the conflict in Ukraine. President Volodymyr Zelenskiy said he has an agreement with the United States to make security guarantees legally binding through a vote in Congress as part of a deal to end Russia’s war.

His team held a second day of discussions in Berlin, with talks lasting about five hours and including U.S. special envoy Steve Witkoff and Jared Kushner, President Donald Trump’s son-in-law.

“The news cycle around Ukraine and Russia is driving the spot lower now,” said Florence Schmit, an energy strategist at Rabobank. “Higher supplies have been playing a role for a while too.”

Still, it’s unclear whether the new U.S. effort will be enough to overcome the hurdles that have derailed previous talks. Russian leader Vladimir Putin hasn’t budged from his demands about seizing vasts swathes of territory.

—With assistance from Sarah Chen.

  • IEA trims forecast of record oil glut for first time since May
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Bloomberg.com