Oil turns lower as positive signs in Russia-Ukraine peace talks ease concerns about supply
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Brent crude fell 4% on Tuesday, after positive signs out of Russia-Ukraine peace talks in Turkey.
Oil pulled back from earlier gains driven by Saudi Arabia pledging to raise selling prices for Asian buyers.
At the talks, Ukraine proposed adopting neutral status, and Russia promised to scale down military operations near Kyiv.
Oil prices fell on Tuesday, losing grip of earlier gains after positive signs from the Russia-Ukraine peace talks in Turkey and after Russia promised to scale back its military operations near Kyiv.
Brent crude futures dropped 5.4% to trade at $103.48 a barrel by lunchtime in Europe, while West Texas Intermediate was 5.7% lower at $99.90 a barrel.
Both benchmarks traded modestly higher earlier in the session, driven in part by demand bullishness around Saudi Arabia's decision to raise its selling prices for Asian buyers, and as uncertainty over the crisis in Eastern Europe persisted.
Ukraine and Russian delegates met face-to-face for the first time in two weeks in Istanbul on Tuesday. Top Russian negotiator Vladimir Medinsky said the talks were "constructive," Reuters reported.
Russia has decided to "drastically" scale down fighting near Kyiv and Chernihiv to create the conditions for dialogue, a Russian deputy defense minister said.
Ukraine proposed it could adopt neutral status — meaning it would not join alliances or host foreign troop bases — in exchange for security guarantees. Medinsky said he will examine the Ukrainian proposals and report back to Russia's President Vladimir Putin, which has been taken as positive progress.
There has been enough progress to hold a meeting between Ukraine's President Volodymyr Zelenskyy and Putin, a Ukrainian negotiator said, according to Reuters.
The oil price has hit 14-year highs this month, as Western sanctions on Russia prompted traders to avoid the country's energy exports and prepare for a potential ban, which would strip around 7% off global daily supply. The market has been highly sensitive to any developments in peace talks between the two sides.
The world's largest oil exporters have been gradually increasing crude output since joint restrictions were put in place during the pandemic. OPEC+, which includes Russia, among others, has so far resisted pressure to step up production more quickly to cool sky-high oil prices.
While the market awaits Thursday's meeting of OPEC+ members, expectations are tapered due to Russia being a member of the group.
"Anxious not to upset the + in OPEC+, Russia, the rhetoric from Saudi Arabia and the UAE suggests little to no chance of increased production above the 400,000 bpd monthly increase previously agreed," Jeffrey Halley, Senior Markets Analyst at Oanda, wrote.
Elsewhere, China is suffering from its most severe COVID-19 outbreak since the beginning of the pandemic two years ago. As a result of the most recent outbreak China's financial hub, Shanghai, will begin a two-stage lockdown over nine day, which will reduce demand for fuel.
"China's COVID lockdowns will provide directional volatility to oil this week. More lockdowns equal lower prices and vice versa," Jeffrey Halley, senior markets analyst at Oanda, wrote.
The country's financial hub accounts for almost 4% of China's oil consumption, analysts at ANZ Research said.
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