WTI back to $117 in more dovish Russian-Ukrainian talk ahead of key talks on Thursday

  • Better news flow regarding the possibility of a diplomatic solution to the Russian-Ukrainian war weighs heavily on crude oil.
  • Discussions between the Russian and Ukrainian foreign ministers on Thursday will be key.
  • WTI is currently down over $7.50 as traders also eye a possible US-Iran nuclear deal and further reserve releases.

A slightly more conciliatory tone in the rhetoric of Ukrainian and Russian officials regarding the possibility of a diplomatic solution to the war ahead of Thursday’s meeting of the two nations’ foreign ministers in Turkey saw oil markets plunge. Russia said on Wednesday “some progress” had been made with Ukraine and outlined a potential territorial compromise, while a Ukrainian official close to President Zelensky hinted that Russian demands for “neutrality” could be discussed. First-month WTI futures subsequently fell nearly $6.50 a barrel during the session to approach the $118 level, a reversal of nearly $12 from the highs of Tuesday at nearly $130.

Traders also said markets were taking a more relaxed view of the U.S. ban on Russian oil imports announced on Tuesday and that it was weighing on prices. “Theoretically, the United States could even offset Russian blackouts with its own production,” said a Commerzbank analyst. Elsewhere, some traders cited expectations for more oil reserve releases as triggering profit-taking after the head of the International Energy Agency hinted that the decision taken last week by member countries of releasing 60 million barrels could be the first of new releases.

As oil traders continue to juggle numerous competing themes, choppy market conditions are likely to last for some time. With Iran’s chief negotiator in the nuclear talks returning to Vienna on Wednesday to continue talks, a deal may well be imminent, despite recent concerns that the Russians were adding additional demands. A deal would pave the way for more than 1.3 million barrels of daily Iranian crude oil exports to return to world markets. In the more immediate future, attention will return to the global crude oil inventory situation with the release of weekly US official data at 15:30 GMT.

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