U.S. Oil Benchmark Falls Below $55, Marking Lowest Price in Nearly Three Years

West Texas Intermediate (WTI) crude slipped beneath the $55-per-barrel threshold on Tuesday, underscoring a sharp retreat in oil prices as traders weigh the prospect of excess supply and a possible reduction in geopolitical tensions surrounding Russia’s war in Ukraine.

The U.S. benchmark touched an intraday low of $54.98 a barrel, its weakest level since Feb. 3, 2021, before trimming some losses to trade 2.36% lower at $55.48. International benchmark Brent crude mirrored the move, falling 2.36% to $59.13 per barrel. The most recent decline leaves WTI down about 23% since the start of 2024, its poorest annual performance since 2018, while Brent is off roughly 21%, on pace for its worst year since 2020.

Falling crude prices have coincided with softer U.S. labor data, adding to concerns that the broader economy may be slowing. Non-farm payrolls grew by 64,000 positions in November after contracting by 105,000 jobs in October. The unemployment rate rose to 4.6%, the highest reading in four years. Those figures have reinforced market expectations for weaker fuel demand through the winter.

Retail fuel costs are already reflecting the shift. Average U.S. gasoline prices have slipped below $3 per gallon, the lowest point in four years, according to the motorists’ group AAA. Lower pump prices provide a short-term boost to consumer purchasing power ahead of the year-end holiday season, even as they place additional pressure on oil producers’ margins.

On the supply side, members of the OPEC+ alliance have gradually restored output after several years of coordinated cuts aimed at propping up prices. The accelerated production pace, combined with sluggish demand growth, has amplified expectations of a surplus entering 2025. Market participants are now assessing whether the group will adjust its strategy again if prices remain under sustained pressure.

Geopolitical dynamics are also shaping sentiment. The Biden administration has intensified efforts to encourage Kyiv and Moscow to consider a negotiated settlement, a move that traders interpret as potentially lowering the likelihood of fresh disruptions to Russian energy exports. Since Russia’s full-scale invasion of Ukraine in 2022, recurring drone attacks on Russian oil infrastructure and Western sanctions on Moscow’s crude shipments have kept a risk premium embedded in global prices.

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Industry analysts estimate that roughly 170 million barrels of Russian crude are currently stored on tankers awaiting buyers. A breakthrough in negotiations could accelerate the release of that volume onto the market by prompting an easing of U.S. and European sanctions and curbing Ukrainian strikes on energy facilities. A sudden influx of withheld barrels would add to already ample inventories and intensify downward pressure on benchmarks.

Ending sanctions could also reshape OPEC+ calculus. With Russian output no longer constrained by storage limits or sanctions-related discounts, the coalition may revisit a strategy briefly paused this year: regaining market share through higher production. Such a pivot would further swell global supply at a time when demand indicators remain tepid. Historical data from the U.S. Energy Information Administration show that previous periods of aggressive output growth by major producers have tended to weigh on pricing for extended intervals.

While crude futures stabilized above session lows by late afternoon, volatility is expected to persist as traders monitor any progress in Ukraine peace efforts, upcoming OPEC+ policy statements, and regular inventory reports. Until clearer signals emerge on each of these fronts, energy markets appear poised to navigate a complex mix of economic uncertainty and evolving geopolitical risk.

Crédito da imagem: Anton Petrus | Getty Images