Brent crude oil falls below $60: Expectations for a ceasefire between Russia and Ukraine rise, and the issue of excess inventory comes to the surface

On Tuesday, crude oil continued its downward trend, with Brent crude falling below $60 per barrel and WTI crude dropping to around $55. As expectations for a ceasefire rise, market concerns over disruptions to Russian oil exports have significantly diminished, while global crude oil inventories are currently in a state of oversupply. Market positioning and volatility data highlight a one-sided bearish sentiment. Fund management companies reduced their net long positions in Brent crude to the lowest level since the end of October last week, while commodity trading advisors (CTAs) have shown a clear bearish bias, with trend followers essentially in a maximum short position. The implied volatility of WTI crude for the next month has dropped to its lowest level since April, with skew indicating a clear preference for put options. Rising Expectations for Russia-Ukraine Ceasefire, Concerns Over Disruptions Significantly Diminished Geopolitical risks are shifting from factors supporting oil prices to those dragging them down. According to CCTV News, on December 15 local time, U.S. President Trump stated that he had a "very good dialogue" with European leaders that day, many of which involved the Russia-Ukraine conflict, and they had a long discussion about it, with things "seeming to progress smoothly." Reports indicate that Trump had very long and very good conversations with Ukrainian President Zelensky, as well as leaders from Germany, Italy, Finland, France, the UK, Poland, Norway, Denmark, the Netherlands, and NATO. Trump believes that we are closer than ever to reaching a "peace agreement" to achieve peace between Russia and Ukraine. The latest developments in the Russia-Ukraine ceasefire negotiations have allowed traders to short crude oil in line with the trend. Although Ukraine continues to strike Russian refining facilities and assets in the Caspian region, and Black Sea shipping still faces risks, the price trend clearly shows that whenever optimistic news about peace talks emerges, crude oil faces downward pressure. Supply Side: High Inventories, Narrowing Refining Margins On the supply side, both the U.S. Energy Information Administration (EIA) and the International Energy Agency (IEA) have warned that the market is facing unprecedented oversupply, with global inventories reaching their highest level in four years. The latest U.S. data further confirms concerns about oversupply. National commercial crude oil inventories decreased by 1.8 million barrels, but the decline was much smaller than expected. Inventories in the Cushing area rose for the first time in a month, despite refinery utilization rates being at their strongest level for this time of year since 2018. The crack spread also reflects the ample supply situation. The 3-2-1 crack spread has fallen to its lowest level since February, with both gasoline and diesel margins retreating, indicating that the refining system is well-supplied ahead of the year-end, rather than scrambling for crude oil. Weak Demand Weighs on Market Sentiment On the demand side, there are no signs that any factors can alleviate the oversupply situation. U.S. gasoline demand has weakened ahead of year-end, currently down 1.3% compared to the same period last year. Distillate demand has surged due to heating needs from cold weather, returning to levels above those of 2024, and jet fuel has also recovered from the lows related to shutdowns, but these localized bright spots have not prevented the crack spread from declining or inventories from remaining at comfortable levels Globally, China's apparent oil demand in November increased by 4.5% year-on-year, but the spot market in the Middle East is weakening. The premium of Murban crude relative to Brent has narrowed to its lowest level since early October, with crude oil sold to Chinese buyers being significantly discounted