Oil prices fell on Monday, reversing course from strong initial gains, as news of fresh diplomatic efforts to resolve the Ukraine crisis provided some relief from concerns about crude supply.
Brent crude futures and U.S. West Texas Intermediate (WTI) crude rose more than $1 a barrel at the start of Asian trade as the Ukraine crisis threatened to disrupt Russian energy exports to Europe.
But prices subsequently swung to a near $1 loss after the office of French President Emmanuel Macron said in a statement on Monday that U.S. President Joe Biden and Russian President Vladimir Putin have agreed in principle to a summit over Ukraine.
Brent crude futures slipped to $93.14 a barrel at 0730 GMT, down 40 cents or 0.4%, after earlier touching $95, while U.S. West Texas Intermediate (WTI) crude futures dropped 28 cents to $90.79 a barrel, off an earlier high of $92.93. U.S. markets will be closed on Monday for the Presidents Day holiday.
“A potential reduction of Ukraine tensions following the US/Russia summit announcement this morning has seen some sellers emerge in oil in Asia,” OANDA’s analyst Jeffrey Halley said.
European Commission President Ursula von der Leyen said Russia would be cut off from international financial markets and denied access to major exports needed to modernise its economy if it invaded Ukraine.
“If a Russian invasion takes place as the U.S. and U.K. have warned in recent days, Brent futures could spike above $US100/bbl, even if an Iranian deal is reached,” Commonwealth Bank analyst Vivek Dhar said in a note.
Analysts at Singapore’s OCBC bank said Brent could test $100 in the short term, possibly before the end of first quarter.
Despite the prospect of $100 oil, ministers of Arab oil-producing countries said on Sunday that OPEC+ should stick to its current agreement to add 400,000 barrels of oil per day each month to output, rejecting calls to pump more to ease pressure on prices.
To avert a major run up in prices, RBC Capital analysts said the White House is expected to prepare a large strategic petroleum reserves (SPR) release coordinated through the International Energy Agency.
“We anticipate that the U.S. SPR release will be larger than the one in November and more sweet barrels could be offered this time around through direct sale,” RBC Capital said in a note.
Price gains have also been limited by the possibility of more than 1 million barrels a day of Iranian crude returning to the market.
A senior European Union official said on Friday a deal to revive Iran’s 2015 nuclear agreement was “very very close”.
Analysts said the market remained tight, and any addition of oil would help, but prices would remain volatile in the near term as Iranian crude would only likely return later this year.