If Russia and Ukraine reach an agreement, how much will oil prices drop?

```

The market is reassessing the prospects for a potential Russia-Ukraine peace agreement, which has already led Brent crude prices to fall 5% in a week to $62/barrel.

According to the Wind Pursuit Trading Desk, on November 26, Goldman Sachs' latest research quantified the price impact of a potential agreement, and pointed out that refined oil faces far greater downside risks than crude itself.

Crude downside potential: Even if a peace agreement is reached and sanctions lifted, the direct downside in crude oil prices is relatively moderate (2026 forecast cut by $4-5/barrel), because the market has already partially priced it in and Russia's production recovery will take time.Refined oil crash risk: Margins for refined products like diesel are facing the main blow; if negotiations succeed, European diesel margins are projected to drop a further $6-8/barrel.Supply and demand fundamentals: In Goldman Sachs' base scenario (with sanctions unchanged), due to strong supply outside Russia, Brent/WTI prices for 2026 were already expected to fall to $56/$52. A peace agreement will accelerate this decline.Trading strategies: Investors are advised to short the Brent crude calendar spread from Q3 2026 to December 2028; producers should hedge the downside risk for 2026 prices; consumers should use a potential crash in 2026 to hedge the upside risk for prices after 2028.

The market is pricing in peace expectations; base scenario remains bearish

As of November 26, 2025, as the market weighs the prospect of Russia-Ukraine peace talks resuming under US coordination, Brent crude prices have fallen to $62/barrel, and the European diesel crack spread (vs. Brent) has plunged nearly 25% to $28/barrel.

In Goldman Sachs' base scenario:

Russian energy infrastructure continues to be targeted by drone attacks, and combined with low oil prices (in ruble terms), Russian liquid fuel production is set to continue its downward trend: falling from 10.1mb/d in Q4 2025 to 9.0mb/d by the end of 2027.

Even without a peace agreement, due to strong supply outside Russia, Brent/WTI prices for 2026 are still expected to fall to $56/$52 per barrel.

Crude downside risk estimates: Peace deal would pull 2026 average prices down to $51-52

If Russia and Ukraine reach a peace agreement and lift sanctions on Russia's oil sector, oil prices will mainly be impacted via two channels: the gradual recovery of Russian production and release of offshore floating storage. Goldman Sachs estimates this will prompt a $4-5 reduction to the base case 2026 Brent forecast.

The reason the direct impact is "moderate" is that the market has already priced in some probability, and there are structural bottlenecks to Russia's production recovery. Even if Western sanctions are removed and refinery attacks stop, technical bottlenecks and high tax wedges mean Russia's output rebound will be gradual over years rather than a few months.

Goldman sets out two recovery scenarios (both assume 50 million barrels from floating storage released over 5 months):

Slow recovery: Russian output stabilizes at Q4 2025's 10.1mb/d level through 2027. In this case, Brent's average in 2026/2027 is forecast at $52/$58 (down $4/$5 from base).Fast recovery: Russian output begins linear recovery from March 2026, returning to pre-war 11.3mb/d by end-2027. In this case, Brent's average for 2026/2027 is projected at $51/$54 (down $5/$9 from the base case).

Since the war started, sanctions have altered trade flows and lengthened shipping routes, causing Russian seaborne crude (including floating storage and in-transit cargo) to increase by about 80mb. If a peace agreement is reached, these "stranded" offshore barrels would rapidly flow to onshore storage facilities, including OECD pricing centers, putting early downward pressure on prices even before Russian production meaningfully recovers. The model assumes in the peace scenario, offshore oil falls by 50mb in 5 months, equivalent to 300kb/d of added supply.

The real hard-hit area: Refined product prices face sharp correction

Compared to crude, the hit to refined oil prices by a peace deal will be more direct and dramatic, based on three key reasons:

Bigger export drop: Since March 2022, Russian refined product exports are down 0.9mb/d, while crude exports are nearly unchanged. This means the refined market is far tighter than crude.Geopolitical premium is too high: Refined product margins currently price in a higher risk premium than crude. Goldman estimates that $7/barrel of European diesel/kero's premium over Brent is driven by geopolitical risk beyond real fundamentals.Freight normalization: Sanctions forced Russian oil shipments to shift east (mainly to India and China), raising shipping costs considerably. If sanctions are lifted, shorter routes will return freight to normal. Since the war, clean product freight costs have risen about $3/barrel.

If talks succeed, diesel margins are expected to fall a further $6-8/barrel, with $4-5 from the unwinding of the risk premium and $2-3 from normalizing tanker freight. In fact, on just the headlines of peace talks, Europe's diesel risk premium fell last week from $15/barrel to $7/barrel.

Short calendar spreads, use low prices to hedge

Although a peace agreement is immediately bearish for oil prices, Goldman maintains a long-term bullish view, seeing Brent rebounding to $80 by the end of 2028, citing long-term underinvestment and ongoing demand growth.

Based on this logic, Goldman recommends:

Short the Brent calendar spread from Q3 2026 to December 2028. This expresses a view of oversupply in 2026.Oil producers: Should hedge the downside risk for 2026 prices.Oil consumers: The 2026 crash caused by strong global supply and rising inventories will be an excellent opportunity to hedge against potential price increases from 2028 onwards.

~~~~~~~~~~~~~~~~~~~~~~~~

The above content is from Wind Pursuit Trading Desk.

For more detailed coverage, including real-time interpretation and frontline research, please join [Wind Pursuit Trading Desk ▪ Annual Membership]

Risk Warning and DisclaimerThe market involves risk and investments should be made with caution. This article does not constitute personal investment advice, nor does it consider the unique investment goals, financial situation or needs of any individual user. Users should consider whether any opinion, views or conclusions in this article are suitable to their own specific situations. Investments based on this are made at your own risk. ```