Oil prices may plunge below $50 per barrel if a peace agreement between Russia and Ukraine lifts Western sanctions, triggering a gradual recovery in Russian oil supply and easing geopolitical risk premiums across energy markets, according to analysts at Goldman Sachs.
Crude futures have already declined 5% in the past week, with WTI – as tracked by the United States Oil Fund (NYSE:USO) – dropping to $57 a barrel, as traders weigh the growing potential for a U.S.-mediated truce between Moscow and Kyiv.
Goldman Sachs analyst Daan Struyven said the market is now partially pricing in the probability of a peace agreement, but the bank still sees further downside risk, especially for refined products like diesel.
“We estimate downside risks to crude prices, and especially refined oil product prices, if sanctions on Russia’s oil sector were to be lifted," Struyven said in the report.
How A Russia-Ukraine Peace Deal Reshapes Oil Markets
Goldman's base case assumes that sanctions remain in place and Russian liquids production declines from 10.1 million barrels per day in late 2025 to 9.0 million by the end of 2027, driven by "very low oil prices in Russian Rubles…deep discounts and a strong Ruble," along with continued Ukrainian drone attacks.
However, in the event of a peace deal, Goldman sees two key drivers for lower oil prices.
A key factor behind the downside risk is the current buildup of Russian crude on tankers, which has risen by roughly 80 million barrels since the war began.
That surge stems from longer voyages and limited access to Western buyers. A peace agreement would allow these barrels to be offloaded more quickly into storage hubs across OECD countries, increasing supply in pricing centers and putting immediate pressure on prices.
Even so, Goldman expects any recovery in Russian output to be slow.
"We would not expect an immediate rebound in Russia supply but rather a gradual recovery," the report said, pointing to structural limitations like outdated technology, operational constraints and a high tax burden that disincentivizes production growth.
A full recovery to pre-war levels, near 11.3 million barrels per day, is only expected under a fast-recovery scenario by the end of 2027.
Why Diesel Prices Face Bigger Losses
Refined product prices, however, may fall much more abruptly. Goldman said the market is underestimating how much of the current premium in diesel and gasoil comes from geopolitical disruptions rather than fundamental supply-demand factors.
The bank estimates that European diesel margins over Brent crude have already dropped from $15 to $7 per barrel in the past week, purely on headlines around the peace talks. If the agreement materializes, diesel margins could fall by another $6 to $8 per barrel.
"We would expect a stronger immediate decline in refined product prices from a potential deal."
The conflict has tightened refined product markets more than crude. Since March 2022, Russia’s refined product exports have declined by about 900,000 barrels per day, whereas crude and condensate shipments have remained relatively stable.
Freight costs are another potential pressure point. As sanctions forced Russia to redirect flows from Europe to Asia, average voyage lengths increased significantly. This shift has driven clean freight rates, which apply to refined products, to surge by approximately $3 per barrel since 2022.
A peace deal could shorten voyages and ease freight bottlenecks, compounding the drop in diesel margins.
Long-Term Oil Outlook Less Bearish
Despite these short- to medium-term risks, Goldman Sachs maintains its long-term Brent oil target of $80 per barrel by the end of 2028.
The bank indicates that the current cycle of underinvestment and steady global demand will tighten markets over the long run.
Moreover, lower oil prices in 2026 and 2027 could discourage production from high-cost suppliers such as U.S. shale, laying the groundwork for a rebound.
“A potentially faster and steeper decline in crude prices on stronger global supply and higher OECD oil stocks in 2026 may provide a good opportunity for consumers to hedge their exposure to higher prices we expect from 2028,” Struyven said.
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