Crude falls to $108.00 a barrel as Ukraine-Russia talks bring hope

London — Oil prices fell about $5 a barrel on Monday as investors pinned hopes on diplomatic efforts by Ukraine and Russia to end their war, while a surge in Covid-19 cases in China spooked the markets.

Brent was down by $4.67, or 4.1%, at $108.00 a barrel at 10am GMT, and US West Texas Intermediate (WTI) crude fell $5.71, or 5.2%, to $103.62 a barrel.

Both contracts have surged since Russia’s February 24 invasion of Ukraine and are up roughly 40% for the year to date.

Ukrainian and Russian negotiators are set to talk again on Monday via video link. Negotiators had given their most upbeat assessments after weekend negotiations, suggesting there could be positive results within days.

“Besides new talks between Ukraine and Russia, I guess new lockdowns in China are the reason for a negative start of the week for crude oil,” said UBS analyst Giovanni Staunovo.

China, the world’s largest crude oil importer and second-largest consumer after the US, is seeing a surge in Covid-19 cases, as the highly transmissible Omicron variant spreads to more cities, triggering outbreaks from Shanghai to Shenzhen.

“This week, market participants are closely tracking how Russian oil exports are evolving. So far this month oil flows had not been disrupted,” Staunovo added.

Russia’s output of oil and gas condensate has risen to 11.12-million barrels per day (bpd) so far in March, two sources familiar with oil production data told Reuters, despite the sanctions on Russian oil.

The US has announced a ban on Russian oil imports and Britain said it would phase them out by the end of 2022. Russia is the world’s top exporter of crude and oil products combined, shipping about 7-million barrels per day or 7% of global supplies.

British Prime Minister Boris Johnson is trying to persuade Saudi Arabia to increase its oil output, a senior minister said, following reports that Johnson would travel to the Opec heavyweight this week.

“Oil prices might continue moderating this week as investors have been digesting the impact of sanctions on Russia, along with parties showing signs of negotiation towards a ceasefire,” said Tina Teng, an analyst at CMC Markets.

Investors are also closely watching the US Federal Reserve meeting this week. The Fed is expected to start raising interest rates, which would boost the dollar and put downward pressure on oil prices.

Oil prices typically move inversely to the US dollar, with a stronger greenback making commodities more expensive for holders of foreign currencies.

Reuters