Oil drops more than 5% on hopes of Russia-Ukraine talks and China shutdown

A customer fills his car with diesel at a gas station in Nice, March 4, 2013. REUTERS/Eric Gillard

NEW YORK (Reuters) – Oil prices fell more than 5 percent on Monday to their lowest level in nearly two weeks on hopes of progress toward a diplomatic end to Russia’s invasion of Ukraine – a development that would boost global supplies – during the pandemic. China’s related travel ban casts doubt on demand.

Brent crude futures fell $5.77, or 5.1 percent, to settle at $106.90 a barrel, while US West Texas Intermediate crude fell $6.32, or 5.8 percent, to settle at $103.01.

It was the lowest close for WTI since February 28 and the lowest price for Brent since March 1. Both benchmarks have risen since the Russian invasion of Ukraine on February 24, and are up nearly 36% so far this year.

“Oil prices reflect bearish sentiment derived from expectations of positive developments in the latest round of Russia-Ukrainian negotiations,” said Kushal Ramesh, an analyst at energy research firm Rystad Energy.

Russian and Ukrainian delegations held a fourth round of talks on Monday – via video link and not in person in neighboring Belarus as in the past – but no new progress was announced. Ukraine said it had held talks with Russia on a ceasefire, an immediate troop withdrawal and security guarantees despite the deadly bombing of an apartment building in Kyiv. Read more

Brent and West Texas Intermediate recorded the most volatile 30 days since June 2020.

Analysts at energy consulting group EBW Analytics note that “China’s renewed COVID outbreak is driving lockdowns further with Omicron spreading rapidly,” which could reduce global energy demand because China is the world’s largest importer of oil, liquefied natural gas and coal.

Northeast China province has imposed a rare travel ban due to the outbreak of Omicron disease.

Two sources familiar with production data told Reuters that Russia’s production of oil and gas condensate rose to 11.12 million barrels per day so far in March, despite the sanctions.

The United States has banned imports of Russian oil and Britain has said it will phase them out by the end of 2022. Russia is the world’s largest exporter of crude and oil products combined, shipping about seven million barrels per day or 7% of global supplies.

A senior minister said British Prime Minister Boris Johnson was trying to persuade Saudi Arabia to increase oil production, while International Energy Agency chief Fatih Birol urged oil-producing countries to pump more. Read more

The office of the French Presidency of the European Union wrote on Twitter, “EU member states have agreed on a fourth package of sanctions against Russia.” It did not include Russian energy exports. Read more

“Energy traders quickly abandoned trading crude oil after the next round of EU sanctions stripped oil from Russian companies,” said Edward Moya, chief market analyst at data and analytics firm OANDA.

India has indicated that it may release more oil from national stockpiles. Read more

Indian officials also said New Delhi was considering a Russian offer to buy crude and other commodities at discounted prices via a ruble-ruble deal. Read more

Iran’s Foreign Ministry spokesman said the United States needs to make a decision to save the 2015 nuclear deal with world powers. Some fear the talks could collapse, and 49 of the 50 Republican senators said they would not support a new nuclear deal. Read more

Analysts said that an agreement with Iran could add another million barrels of oil supplies to the market, but noted that this would not be enough to compensate for the decline in supply from Russia. Read more

The US Federal Reserve is expected to start raising interest rates this week, which should boost the dollar. This could lower oil prices by making dollar-denominated oil more expensive for holders of foreign currency. Read more

Crude stocks at storage hub Cushing in Oklahoma rose last week for the first time this year, traders said, referring to a report from data provider Genscape. US government data showed that inventories there had fallen for nine consecutive weeks.

Additional reporting by Bozorgmehr Sharafuddin in London, Emily Chow in Beijing and Stephanie Kelly in New York. Editing by Susan Fenton, Will Dunham, Jason Neely and David Gregorio

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