The Russia-Ukraine peace talks boost oil prices and raise bottom risk concerns. Why are analysts warning against chasing short positions?

**Oversupply Continues to Suppress Energy Prices**

Since 2025, the crude oil market has been in a continuous downtrend. WTI crude oil has fallen by 23% since the beginning of the year, and Brent crude has declined by 21%. On December 16, WTI dropped to $54.98 per barrel, hitting the lowest point since February 2021, while Brent also fell to $58.72 per barrel, marking an eight-month low. Behind this decline reflects a structural imbalance in the global energy market—OPEC+ gradually increasing capacity, non-OPEC countries maintaining production growth, all while major economies like the US and China face weak demand, leading to an oversupply and insufficient demand situation that worsens.

**Ceasefire Negotiations Trigger New Supply Disruption Expectations**

On the news front, U.S. President Trump recently stated that Russia and Ukraine are close to reaching a peace agreement. This development has sparked new market speculation—once a ceasefire is established, U.S. economic sanctions on Russian oil could be quickly lifted, Ukraine's attacks on Russian energy infrastructure would cease, and a large amount of Russian crude oil could re-enter the international market. According to Jorge Leon, an analyst at Rystad Energy, this move would further exacerbate the global supply surplus.

However, German commercial bank analyst Carsten Fritsch offers a contrary view. He believes that, although the Russia-Ukraine conflict may end, Russia's capacity to significantly increase oil production is limited, as the country is already constrained by OPEC+ production agreements and is near its capacity limits. Under this framework, the current price decline "may have already exceeded what fundamentals can justify."

**Technical Oversold Signals Indicate Risks**

The latest assessment from Ritterbusch & Associates points out that, although the U.S. may still face oversupply next month, institutions warn investors to be cautious about shorting. The key warning is: **When WTI falls below $55 per barrel, technical indicators clearly show an oversold condition, and it is not advisable to establish new short positions at this moment**. This suggests that, even with underlying downward pressure, extreme price levels contain rebound risks.

Zhou Siyue