Oil Prices Drop to Lowest Levels Since 2021 Amid Supply Surplus and Demand Uncertainty

Oil prices fell by over 2% during trading on Tuesday, with West Texas Intermediate crude nearing $55.5 per barrel, marking its lowest price since early 2021. Year-to-date, prices have dropped approximately 22%, representing the worst annual performance for oil since 2018.

This decline comes amid rising expectations of a possible end to the war in Ukraine, reviving prospects for easing restrictions on Russian oil flows, which reduces supply disruption risks in a market already facing an oversupply.

Increased global production has pressured prices throughout the year, as the OPEC+ alliance has reinstated previously halted production levels, alongside non-OPEC producers, particularly in the Americas, continuing to raise production levels.

Meanwhile, weak economic data from China has deepened market pressures, indicating ongoing slowdown in the world's second-largest economy, raising concerns about global energy demand outlook.

Despite this, some geopolitical factors have limited the pace of losses, with risks emerging regarding potential US military action in Venezuela after the Trump administration detained a giant oil tanker last week, keeping a degree of caution in the markets.