Oil prices held onto modest gains on Friday, extending a two‑day rally as markets digested renewed uncertainty around peace talks in Ukraine and fresh supply risks stemming from regional tensions. The recovery reflects a tug‑of‑war between supply concerns, driven by export disruptions and infrastructure attacks, and an overhang of global surplus pressures. For Israeli and global investors, the tug between geopolitics and oversupply may shape energy‑sector sentiment heading into year‑end.

Geopolitical Strain Supports Oil Amid Unsettled Ukraine Talks

Prices of major crude benchmarks edged up as hopes for a resolution between Russia and Ukraine dimmed, reinforcing concerns that sanctions and Russian export restrictions could remain in place for months. Brent crude recently hovered around $63.32 per barrel, while WTI touched near $59.71.

Ukrainian drone strikes on Russian oil infrastructure and stalled negotiations have heightened fears over future global supply, prompting some traders to cover shorts and add long positions. Analysts now view the risk of prolonged disruption as supportive of oil prices — at least in the near term — as markets price in possible supply gaps that could tighten global flows.

Surplus Overhang Limits Upside, Global Supply Keeps Rising

Despite the short‑term lift from geopolitical tensions, structural pressures from oversupply continue to weigh. A recent forecast anticipates a sizable surplus in 2026 as production from OPEC+ and non‑OPEC producers rebounds while demand growth remains sluggish.

This looming glut is exacerbated by rising U.S. inventories and weak consumption trends in major economies. The imbalance between growing output and muted global demand growth constrains further upward moves in crude prices, leading some analysts to expect a trading range rather than a new rally this quarter.

Market Sentiment: Cautious Optimism Amid Elevated Uncertainty

Traders are navigating a complex landscape where geopolitical risk offers intermittent upside, but overcapacity and demand uncertainty create downside risk. The expectation of possible rate cuts by the Federal Reserve — which could support global economic activity — adds another layer of complexity to crude’s outlook.

For institutional investors in Israel and beyond, energy‑sector allocations may hinge on near‑term developments such as fresh data on inventories, renewed sanctions, or new supply disruptions. As such, many are adopting a wait‑and‑see approach, seeking clearer signals before increasing exposure to volatility-prone commodities.

Outlook: What to Watch Next in Oil Markets

In the coming weeks, investors will monitor several key indicators: the outcome of Ukraine peace negotiations, levels of Russian and Caspian‑region exports, weekly U.S. inventory data, and signals from global central banks about future rate moves. A surprise disruption to major supply routes or a geopolitical escalation could reignite a stronger rally. Conversely, weak demand or confirmation of a growing global surplus could pressure prices toward the mid‑$50s per barrel. Energy‑sector stakeholders should remain alert to how these conflicting dynamics resolve, as the balance between supply constraints and oversupply will likely define crude’s near‑term trajectory.