Peace Deal Rumors Crush Oil Markets—But Supply Risks Run Deep

The Setup: WTI crude dropped 1.51% to 5-week lows on Tuesday (January contract) as reports broke that Ukraine is ready to accept revised peace terms with Russia. Gasoline took an even bigger hit, sliding 1.29%. The narrative is simple: war ends → Russian sanctions lift → global oil flooding back → prices crater.

But Here’s the Thing: Ukraine has already crippled Russia’s refining capacity by 13-20%, knocking out roughly 1.1M bpd of production. Russia’s tanker exports just hit a 3+ year low at 1.7M bpd. Even if peace happens tomorrow, it’ll take months to rebuild that infrastructure. Meanwhile, the US economy is sending mixed signals—retail sales flopped (+0.2% vs +0.4% expected), payrolls weakened, and consumer confidence dropped to 7-month lows.

The Bigger Picture:

• OPEC just flipped its forecast from a 400k bpd deficit to a 500k bpd surplus (Q3)
• IEA is calling for a record 4.0M bpd global surplus in 2026
• US crude production keeps chugging (EIA now expects 13.59M bpd in 2025), but rig counts are still 33% below the 2022 peak
• Oil sitting idle on tankers hit 114.31B barrels—highest in 2.25 years

What’s Holding Prices Up?: Geopolitical wild cards. US military buildup near Venezuela (world’s 12th-largest producer), ongoing Russia-Ukraine friction, and the fact that OPEC+ is trying to unwind 2.2M bpd of cuts they made last year. Only 1.2M bpd left to restore—but they just pumped the brakes on further hikes through Q1-2026.

Bottom Line: Peace rumors = temporary panic sell. But structural oversupply is the real story. Weak demand + rising US production + sanctions-damaged Russian capacity = a recipe for sticky low prices into 2026. Watch the EIA inventories report—consensus is crude drops 2.36M barrels, but if demand keeps stumbling, that’s bearish too.