View: Cautiously Bearish
Target Price: $60-62/bb
Last week, the Feb’26 Brent crude futures closed lower, falling from $63/bbl at the start of the week as prices test the $61/bbl support level. For the past two months, Brent has been slowly, but steadily, trending lower, with prices seeing lower lows and lower highs. As we enter the final full trading week of the year, we expect prices to grind lower but crucially find support at the $60/bbl level. The key factors are outlined in this forecast:
- Russia-Ukraine Peace Negotiations
- Technicals
- Physical Market Dynamics
Russia-Ukraine Peace Negotiations
For oil markets, the situation in Ukraine is the wildcard going into year-end, with Trump telling Zelenskyy last week that he has until Christmas to accept a peace deal with Russia. Over the weekend, following talks with US envoys in Berlin, Zelenskyy on Sunday said that he was willing to drop Ukraine’s goal to join Nato in exchange for western security guarantees. This was aimed to advance peace talks and marks a large shift from Ukraine’s previous aspiration to join Nato. In a readout, Special Envoy Steve Witkoff said, “a lot of progress was made” and the meetings will continue Monday. As diplomatic efforts intensify, any credible signs of a peace deal, which implies the easing of most US sanctions on Russian oil companies, will trigger immediate downside pressure on crude prices, increasing downside tail risk.
Meanwhile, EU leaders will gather in Brussels this Thursday to finalise a deal that would potentially freeze Russian assets of up to €210bn to help Kyiv fund its military and economy through 2027. However, with the Czech Republic joining Italy and Belgium in rejecting the plan and calling for alternatives, makes it less likely that the EU will strike a deal this week.
Technicals
From a technical perspective, Brent has been steadily grinding lower, with prices seeing lower highs and lower lows. Volatility saw a further decline, with Brent’s average true range (ATR) falling to the lowest level since Apr-May 2024. The 50-day moving average marks firm resistance, with prices failing to break past over four occasions in the past two months. On the other hand, $60/bbl marks an extremely important psychological support level. Given recent trends, prices are being compressed and trending within a tentative descending triangle. Only a breakout beyond these levels may trigger a larger and more sustained directional move. In the very short-term, however, bearish momentum may be getting exhausted, with the fast stochastic line reaching oversold territory.
Physical Market Dynamics
Given the continued narratives of an impending crude glut in 2026, we suggest keeping a close eye on the state of the physical market. Expectations of continued Russian crude flows saw prompt Dubai crude spreads sell off last week, with front-month Brent/Dubai surging higher from -$0.70 to $0/bbl in a week. The front Jan/Feb’26 Brent/Dubai box is trading positive, indicating relative oversupply in front Dubai.
Meanwhile, the Dated Brent market is seeing decent interest, where the physical is being well bid by majors and trade houses, while prompt CFD weeks are seeing an orderly backwardation. This suggests there is confidence that January-loading barrels could be comfortably absorbed by the market. Yet, Brent spreads are struggling notionally, with Feb/Mar’26 pressured around $0.30/bbl, and the curve from Q3’26 onwards are in contango. While expectations of a crude glut are unanimous, the impact on price action may not be as dramatic.
