Oil slips on new hope for diplomacy over Ukraine crisis

An oil pump at sunset outside Schebenhard, near Strasbourg, France, October 6, 2017. REUTERS/Christian Hartmann

MELBOURNE (Reuters) – Oil prices fell on Monday, reversing strong initial gains, as news of fresh diplomatic efforts to resolve the Ukraine crisis eased concerns over crude supplies.

Brent crude and US West Texas Intermediate crude futures rose more than $1 a barrel in early Asian trading as the Ukraine crisis threatened to disrupt Russian energy exports to Europe.

But prices later swung to nearly $1 after French President Emmanuel Macron’s office said in a statement on Monday that U.S. President Joe Biden and Russian President Vladimir Putin had agreed in principle to hold a summit on Ukraine. Read more

Brent crude futures fell to $93.14 a barrel at 0730 GMT, down 40 cents, or 0.4%, after touching $95 earlier, while US West Texas Intermediate crude futures fell 28 cents to $90.79 a barrel, from the highest Previous level at $92.93. US markets will be closed Monday for the President’s Day holiday.

“The potential reduction in Ukraine tensions following the announcement of the US/Russia summit this morning has led to some oil sellers emerging in Asia,” said Jeffrey Haley, an analyst at OANDA.

European Commission President Ursula von der Leyen said Russia would be cut off from international financial markets and block access to key exports needed to modernize its economy if it invaded Ukraine. Read more

“If a Russian invasion happens as the US and UK have warned in recent days, Brent crude futures could rise above $100/barrel, even if an Iran deal is struck,” Commonwealth Bank analyst Vivek Dar said in a note.

Analysts at Singapore’s OCBC Bank said Brent crude could test $100 in the short term, possibly before the end of the first quarter.

Despite the possibility of oil reaching $100, 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 for production, rejecting calls to pump more to ease pressure on prices. Read more

To avoid a surge in prices, RBC Capital analysts said the White House is expected to prepare significant strategic petroleum reserves (SPR) coordinated through the International Energy Agency.

“We expect the US Strategic Petroleum Reserve release to be larger than the November release, and more nice barrels could be delivered this time through direct selling,” RBC Capital said in a note.

Price gains were also limited by the potential return of more than 1 million barrels per day of Iranian crude to the market.

A senior European Union official said on Friday that a deal to revive the 2015 Iran nuclear deal is “very close”.

Analysts said the market remains tight and any addition of oil will help, but prices will remain volatile in the near term as Iranian crude is likely to return later this year.

(Reporting by Sonali Paul and Florence Tan) Editing by Sam Holmes, Shivani Singh and Muralikumar Anantharaman

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