Here's an interesting scenario that could reshape energy markets: if Russia and Ukraine reach a peace agreement that lifts Western sanctions, oil prices might not just dip—they could crater below $50 per barrel. That's the call from Goldman Sachs analysts, who see a potential supply recovery triggering significant downside for crude and especially refined products.

We're already seeing movement. Crude futures have dropped 5% over the past week, with WTI—tracked by the United States Oil Fund United States Oil Fund (USO)—sliding to $57 a barrel as traders start pricing in the possibility of a U.S.-brokered truce between Moscow and Kyiv.

Goldman analyst Daan Struyven noted that markets are partially reflecting peace deal odds, but the bank sees considerably more downside ahead, particularly for diesel and other refined products.

"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.

The Peace Deal Math

Goldman's baseline scenario assumes sanctions stay put, with Russian liquids production declining from 10.1 million barrels per day in late 2025 to 9.0 million by end-2027. That decline would come from "very low oil prices in Russian Rubles…deep discounts and a strong Ruble," plus ongoing Ukrainian drone attacks on infrastructure.

But if peace talks succeed, two major factors could push prices lower.

First, there's the tanker traffic jam. Since the war started, roughly 80 million barrels of Russian crude have piled up on tankers—a consequence of longer voyages and blocked access to Western buyers. A peace agreement would let these barrels flow quickly into OECD storage hubs, flooding pricing centers and immediately weighing on markets.

That said, Goldman doesn't expect Russian production itself to bounce back overnight.

"We would not expect an immediate rebound in Russia supply but rather a gradual recovery," the report noted, pointing to structural headwinds like outdated technology, operational constraints, and a tax system that discourages production growth.

A full recovery to pre-war levels around 11.3 million barrels per day would only happen in a fast-recovery scenario by late 2027.

Diesel Takes the Hardest Hit

While crude faces downside risk, refined products like diesel could see much steeper drops. Goldman argues markets are underestimating how much of the current diesel premium comes from geopolitical disruption rather than actual supply-demand fundamentals.

The numbers tell the story: European diesel margins over Brent crude have already collapsed from $15 to $7 per barrel in just the past week on peace talk headlines alone. If an actual agreement materializes, Goldman sees margins falling another $6 to $8 per barrel.

"We would expect a stronger immediate decline in refined product prices from a potential deal."

Refined product markets have been squeezed harder than crude throughout the conflict. Since March 2022, Russian refined product exports have fallen by roughly 900,000 barrels per day, while crude and condensate shipments have stayed relatively stable.

Freight costs add another layer. Sanctions forced Russia to reroute flows from Europe to Asia, dramatically increasing voyage lengths. This pushed clean freight rates—which apply to refined products—up by approximately $3 per barrel since 2022. A peace deal could shorten those voyages and ease freight bottlenecks, amplifying the pressure on diesel margins.

The Long Game Still Looks Tighter

Despite all these near-term risks, Goldman isn't turning bearish on oil's long-term outlook. The bank maintains its Brent target of $80 per barrel by end-2028.

The reasoning: chronic underinvestment combined with steady global demand should tighten markets over the longer run. Plus, if oil prices drop sharply in 2026 and 2027, high-cost producers like U.S. shale operators might pull back, setting up conditions 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.

In other words, if peace talks succeed and oil does plunge, it might be a chance to lock in lower prices before the market tightens again down the road.