U.S. crude oil prices closed at their lowest level in nearly four years on Tuesday, as mounting concerns over a global supply surplus and easing geopolitical risk weighed heavily on markets.

West Texas Intermediate crude fell 2.7% to settle at $55.27 per barrel, its lowest closing price since February 2021, during the height of the Covid-19 pandemic. Global benchmark Brent crude declined by a similar margin, closing at $58.92 per barrel.

The slump caps a difficult year for energy markets. U.S. crude is down approximately 23% year-to-date, marking its worst annual performance since 2018, while Brent has fallen around 21%, its weakest showing since 2020.

One of the main drivers behind the decline has been a surge in supply. OPEC+ producers have ramped up output this year after several years of coordinated production cuts, flooding the market at a time when demand growth remains uncertain.

At the same time, investors are reassessing geopolitical risks that had previously supported higher oil prices. Markets are increasingly pricing in the possibility of a peace agreement between Russia and Ukraine, following renewed pressure from U.S. President Donald Trump for Kyiv to seek a negotiated settlement.

Since Russia’s full-scale invasion of Ukraine in 2022, oil markets have been supported by fears of supply disruptions, reinforced by drone attacks on Russian energy infrastructure and sweeping Western sanctions on Russian crude exports. However, analysts say these risks could ease rapidly if a deal is reached.

Jorge Leon, head of geopolitical analysis at Rystad Energy, said sanctions on Russian oil companies and restrictions on exports would likely be lifted relatively quickly in the event of an agreement. That could allow a significant volume of Russian oil currently stored at sea — estimated at around 170 million barrels — to return to the market.

Such a shift would further tilt the market toward oversupply and could alter OPEC+ strategy. Leon noted that an end to U.S. sanctions would likely push the group to resume efforts to regain market share through higher production, reversing its recent attempts to stabilise prices.

Falling oil prices are also raising concerns about broader economic momentum. U.S. job growth slowed sharply in recent months, with November adding just 64,000 jobs, following a downward revision in October. The unemployment rate has climbed to a four-year high of 4.6%.