Russia-Ukraine agreement severely impacts oil market? Barclays: Substantial impact is questionable, Brent crude is still expected to be $66 next year

With the expectations of peace talks between Russia and Ukraine heating up, the geopolitical risk premium in the crude oil market has quickly retreated, with Brent crude oil prices falling to around $63 per barrel.

Barclays Bank pointed out in its latest report that although ceasefire negotiations have emerged on the geopolitical front, the bank believes such events are unlikely to change the fundamental landscape of the crude oil market in 2026, maintaining its forecast of an average Brent crude oil price of $66 per barrel in 2026. Analysts state that compared to the short-term fluctuations caused by geopolitical events, the structural factor of capacity constraints will become a more important support for the oil market in the next two years.

The report emphasizes that current market concerns about oversupply are overly exaggerated, while structural positive factors are underestimated. The analysis is based on two main aspects. On one hand, OPEC+ oil-producing countries, including Russia, generally face capacity constraints, with actual production consistently falling below target levels.

On the other hand, the market share of core OPEC oil-producing countries has remained stable since 2019 and is expected to further expand by the end of 2026. This means that global crude oil pricing power is concentrating in the hands of a few oil-producing countries that control the vast majority of idle capacity. As U.S. shale oil growth slows and global excess capacity shrinks, market supply and demand balance will increasingly rely on the policy adjustments of this core group, thereby building a solid medium-term support for oil prices.

Russia's Capacity Constraints Emerge

The Barclays research report questions the market consensus that "a ceasefire will trigger a surge in Russian oil supply." The bank pointed out that even in a scenario of eased geopolitical tensions, Russia's crude oil production is unlikely to achieve substantial growth before 2026.

The report analyzes that, on one hand, although Russia's OPEC+ production quota target has significantly increased this year, its actual production in the first ten months has instead declined by 100,000 barrels per day year-on-year, indicating a persistent divergence between capacity and policy targets.

On the other hand, under the stable sanctions policy during the same period, the phenomenon of declining production rather than increasing confirms that capacity constraints have replaced policy restrictions as the core bottleneck limiting supply. This indicates that the market has overestimated Russia's short-term production increase capacity while underestimating its structural capacity dilemmas.

Expectations of Oversupply Have Been Fully Digested

The report points out that market concerns about oversupply in crude oil next year may be excessive, as investors underestimate the widespread capacity constraints within OPEC+ and the structural contraction of global excess capacity.

Barclays analyzes that OPEC+'s actual production increase capacity has significantly lagged behind its policy targets. Data shows that since the policy shift in March this year, although the 18 OPEC+ countries have cumulatively raised production targets by 2.6 million barrels per day, actual production has only increased by 1.2 million barrels per day, with an execution rate of less than 50%, reflecting that most member countries face ongoing capacity constraints At the same time, the global oil supply elasticity is systematically declining. With the slowdown in U.S. shale oil growth and the depletion of resources in other non-OPEC regions, global effective idle capacity is increasingly concentrated in a small number of core OPEC oil-producing countries such as Saudi Arabia and the UAE. Data shows that since 2019, the share of core OPEC countries in global crude oil and natural gas liquids production has remained stable, and it is expected to further increase next year, strengthening their pricing power in the global supply landscape.

In addition, Barclays pointed out that market concerns about oversupply next year have been fully priced into current oil prices. Non-OPEC+ countries generally face reserve bottlenecks, a slowdown in U.S. shale oil growth, shrinking global idle capacity, and resilience shown on the demand side. These overlooked supply-side constraints, along with sustained demand support, collectively provide support for oil prices