Oil falls on new hope for diplomacy in the face of the Ukraine crisis

By Sonali Paul and Florence Tan

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

Brent crude and U.S. West Texas Intermediate (WTI) crude futures 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 then fell to a loss of nearly $1 after French President Emmanuel Macron’s office said in a statement on Monday that US President Joe Biden and Russian President Vladimir Putin had agreed in principle to a summit on Ukraine.

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 crude futures Texas Intermediate (WTI) fell 28 cents to $90.79 a barrel from an earlier high of $92.93. US markets will be closed on Monday for the Presidents Day holiday.

“A potential reduction in tensions in Ukraine following the announcement of the US-Russia summit this morning has seen oil sellers emerge in Asia,” said OANDA analyst Jeffrey Halley.

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

“If a Russian invasion takes place as the US and UK have warned in recent days, Brent futures could rise above $100 a barrel, even if an Iran deal is reached,” he said. Commonwealth Bank analyst Vivek Dhar said in a note.

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

Despite the prospect of $100 oil, Arab oil-producing ministers said on Sunday that OPEC+ should stick to its current agreement to add 400,000 barrels of oil a day each month to production , dismissing calls to pump more to ease price pressure.

To avoid a major price hike, RBC Capital analysts said the White House should prepare a major release of Strategic Petroleum Reserves (SPR) coordinated by the International Energy Agency.

“We expect the SPR release in the US to be larger than November’s release and more sweet barrels may be offered this time around through direct sales,” RBC Capital said in a note.

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

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

Analysts said the market remained tight and any additional oil would help, but prices would remain volatile in the near term as Iranian crude is unlikely to return until later this year.

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

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