Oil prices fell 1.5% on Friday, marking a third consecutive day of decline. The drop came as the US pushed for a peace agreement between Russia and Ukraine, which, if achieved, could increase global oil supply. Meanwhile, uncertainty over US interest rate cuts dampened investor risk appetite.
Brent crude futures dropped 96 cents, or 1.5%, to $62.42 per barrel, following a 0.2% decline in the previous session. US West Texas Intermediate (WTI) crude fell 1.8%, or $1.03, to $57.97 per barrel after closing 0.5% lower on Thursday.
Both benchmark contracts are on track for weekly losses exceeding 2.5%, erasing most of last week's gains amid concerns over oversupply.
Market sentiment turned bearish as Washington promoted a peace plan to end the three-year conflict between Ukraine and Russia. Sanctions on Russian state oil firm Rosneft and Lukoil are set to take effect on Friday.
"Oil prices extended losses after Zelensky agreed to study a US-Russia drafted peace plan, while sanctions on two major Russian oil companies are expected to be imposed Friday," Saxo Bank analysts noted in a client report.
However, some analysts remain skeptical about how soon a peace deal could be reached.
"The agreement remains far from certain," ANZ analysts said in a note, adding that Kyiv's repeated insistence on Russia's unacceptable demands has hindered any potential breakthrough.
"Markets are also questioning whether the latest restrictions on Rosneft and Lukoil will prove effective."
A stronger US dollar, coupled with weak US stock performance, further pressured oil prices.
"Oil markets may face headwinds in the coming weeks," said Kelvin Wong, senior market analyst at OANDA.
He cited potential indirect downward pressure from US equities after the S&P 500 showed bearish reversal signals in the previous session.
"The probability of a Fed rate cut in December has plunged from around 90% a month ago to just 35% (per CME FedWatch Tool)... which would suppress oil demand."
The dollar is poised for its best weekly gain in over a month as investors bet against a Fed rate cut next month.