Oil prices fell sharply on Friday, marking the third consecutive day of declines, as traders reacted to growing optimism around a possible peace framework between Russia and Ukraine and increased doubt over a potential U.S. interest rate cut next month.
Brent crude slid by roughly 1.5% during early trading, dropping to the low-$62 range.
U.S. West Texas Intermediate also retreated by nearly 2%, falling below $58 a barrel.
Both benchmarks are on track for weekly losses exceeding 2.5%, wiping out gains made earlier in the month.
Market sentiment shifted as reports surfaced that Washington has been pushing forward a peace proposal jointly shaped by U.S. and Russian negotiators, with Ukrainian President Volodymyr Zelenskiy agreeing to participate in the talks.
Analysts say even the possibility of progress could affect oil prices by reducing the geopolitical risk premium that has supported prices throughout the conflict.
Saxo Bank noted in an investor update that “oil extended declines as Zelenskiy agreed to work on a U.S.- and Russia-drafted peace plan,” underscoring how sensitive markets remain to developments in the nearly three-year-old war.
Despite that, other analysts caution that a peace deal is far from guaranteed.
ANZ researchers said the likelihood of a breakthrough remains low due to Kyiv’s continued objections to core elements of Russia’s position.
They also raised doubts about the effectiveness of new sanctions on major Russian oil firms, including Rosneft and Lukoil, which are set to come into force shortly.
Lukoil has been given a deadline in December to divest its large international portfolio, adding logistical complexity to an already strained market.
A strengthening U.S. dollar added additional downward pressure on oil on Friday.
Because oil is priced in dollars, a stronger currency makes crude more expensive for holders of other currencies, constraining global demand.
Market analysts say broader financial conditions are also weighing on sentiment.
U.S. stocks posted weaker performance this week, creating a negative feedback loop for commodities as risk appetite fades.
Kelvin Wong, a senior analyst at OANDA, said the oil market is now facing “several headwinds,” including the sharp drop in expectations for a Federal Reserve rate cut in December.
Where markets once saw a strong probability of monetary easing, they now view it as unlikely, with odds falling significantly over the past month.
A delayed rate cut would keep borrowing costs elevated and could further weaken economic growth and energy consumption.
As traders await clarity from the Federal Reserve and updates on peace efforts in Eastern Europe, analysts expect oil to remain under pressure in the short term.