During Thursday’s Asian session, West Texas Intermediate (WTI) crude oil prices dropped to $58.70. This decline comes amid ongoing talks about a possible peace deal between Ukraine and Russia. The U.S. crude inventories fell by 1.812 million barrels last week, surpassing the expected decrease of 1.2 million barrels, according to the Energy Information Administration (EIA). Analysts believe that if the conflict ends, it could stabilize the region’s energy infrastructure, lowering risks and potentially impacting WTI prices.

Federal Reserve Interest Rate Cut

The Federal Reserve has cut interest rates for the third time this year, lowering the federal funds rate by 25 basis points to a range of 3.5%–3.75%. Lower interest rates can boost economic growth and increase oil demand by reducing borrowing costs. WTI, which stands for West Texas Intermediate, is a key benchmark in the oil market, known for its low sulfur content. Prices are influenced by supply and demand, global growth, political situations, and OPEC’s production choices. Weekly inventory reports from the American Petroleum Institute and the EIA play a vital role in determining WTI prices. These reports show supply and demand trends, with inventory changes affecting how the market perceives oil availability. Currently, the market is responding to conflicting signals. The potential peace deal in Ukraine is adding downward pressure on WTI prices, pushing them below $59, despite positive news from the Federal Reserve and EIA. This conflict between geopolitical issues and economic data creates an uncertain environment that we need to navigate carefully in the weeks ahead.

Christmas Deadline for Peace Agreement

The Christmas deadline for a peace agreement is the main driver for oil prices as we head into the new year. A successful deal could eliminate the geopolitical risk premium that has influenced energy prices since the conflict escalated in 2022, potentially pushing crude oil prices down to the low $50s. Therefore, we should consider preparing for a further price drop as this deadline approaches. Although the Federal Reserve’s recent rate cut to a 3.5%-3.75% range seems supportive, it is the third cut in 2025, indicating concerns about economic strength. Historically, a series of rate cuts suggests a slowing economy, which could weaken oil demand and limit any price increases. This economic softness should limit any bullish sentiment if the peace talks do not progress. Given the high level of uncertainty, volatility is key to trading. The CBOE Crude Oil Volatility Index (OVX) is currently high, trading around 35, reflecting the market’s anxiety over the outcome of the peace negotiations. A straightforward approach would be to buy put options on January or February 2026 WTI futures contracts to benefit from a possible price drop while capping our maximum risk. The larger-than-expected drop in U.S. crude inventories by 1.8 million barrels provides some price support but may not be enough to counteract the strong geopolitical narrative. We should watch for WTI to test earlier technical support levels, possibly near $55, if momentum for peace talks continues. However, a sudden failure in negotiations could quickly drive prices back up to $65. Create your live VT Markets account and start trading now.

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