Oil prices slipped at the start of the week as markets reassessed geopolitical risk, driven by growing optimism around a potential Ukraine-Russia peace framework. Brent crude moved toward $62 a barrel, extending last week’s sharp declines and reinforcing the market’s broader shift toward pricing in a more stable geopolitical environment. For a market already contending with abundant supply, the prospect of a peace agreement has added downward pressure at a delicate moment for global energy dynamics.

Geopolitical Risk Premium Eases as Talks Make Progress

Momentum toward a diplomatic breakthrough intensified after US Secretary of State Marco Rubio described weekend discussions in Geneva as “productive,” and Ukrainian officials echoed that meaningful progress had been achieved. European leaders — historically cautious in their assessments — also signaled a more optimistic tone.

For oil markets, which have spent nearly three years pricing in wartime supply distortions, any credible indication of de-escalation has immediate consequences. Risk premiums that once supported prices during moments of elevated uncertainty are now receding, exposing the underlying reality of a market tilted toward oversupply. Traders, anticipating potential sanctions relief and an eventual return of Russian barrels to global flows, have shifted decisively into defensive positioning.

On Friday, bearish option volumes reached their highest level in nearly a month, with premiums widening as participants sought protection against further downside. The acceleration in hedging activity signals a market preparing not only for lower prices but for higher volatility as geopolitical assumptions are rewritten.

Structural Oversupply Continues to Dominate Market Fundamentals

Beyond geopolitics, fundamentals are exerting substantial pressure. Oil futures are on track for a fourth consecutive monthly decline in November — the longest losing streak since 2023 — driven by expanding global output and subdued demand growth. OPEC+ supply remains elevated, and US production continues to push toward record levels.

The International Energy Agency expects a significant surplus for 2026, reinforcing expectations that any easing of geopolitical tension will expose the depth of the market’s imbalance. With inventories already rising and refining margins softening, traders now view geopolitical relief as a catalyst that could accelerate the normalization of global supply.

Analysts caution that the Thanksgiving week may bring heightened volatility, with liquidity typically thinner and macro catalysts amplifying price swings. “A nervous market is likely,” said Arne Lohmann Rasmussen of Global Risk Management, noting that even incremental diplomatic progress could push prices lower.

Political Hurdles Remain as Allies Debate Negotiation Terms

Despite new momentum, the path to an agreement is far from clear. European leaders have expressed concerns that the initial framework may be too favorable to Moscow, prompting calls for revisions. The US had targeted Nov. 27 as a soft deadline for establishing a roadmap, but Rubio acknowledged negotiations may extend beyond that date.

This uncertainty is adding a layer of complexity to market pricing. While traders lean bearish, the risk of stalled talks or renewed tension means a geopolitical floor remains. Investors now face the challenge of navigating a market where both upside shocks and downside pressures coexist.