Oil edged lower after Russia’s offer to cut back military operations around Ukraine’s capital offered a tenuous path forward for the two nations.

Futures in New York fell 1.6 per cent on Tuesday, paring back substantially from a brief plummet below US$100 a barrel earlier in the session. West Texas Intermediate futures sank more than 7 per cent after Moscow said it would reduce military operations near Kyiv and signaled a willingness to consider a presidential meeting between Vladimir Putin and Volodymyr Zelenskiy. Talks between negotiators subsequently ended the day without a cease-fire and the U.S. cautioned against declaring progress.

“We are still in a US$100 environment, no question,” said Paul Sankey of Sankey Research on Bloomberg Television. China’s continuing lockdowns are also relieving some pressure, but markets remain volatile, he said. “China is taking heat out of the market, but if the heat comes back, that adds US$10” a barrel.

Crude has largely traded above US$100 a barrel since Moscow invaded Ukraine. Ensuing sanctions against Russia have caused extreme price gyrations in the oil market, leaving investors wary of trading. For the month of March, WTI has fluctuated on average over US$9 per session.

“Fundamental traders and investors have taken their chips off the table in crude due to extremely high volatility, leaving the primary players in the market to be traders looking to hedge geopolitical risks,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. 

Prices

• WTI for May delivery fell 74 cents to US$105.22 a barrel at 4:47 p.m. in New York after settling at US$104.24
• Brent for May settlement lost US$2.25 to close at US$110.23 a barrel

Following the conclusion of talks between Russian and Ukrainian negotiators in Istanbul, U.S. Secretary of State Antony Blinkin expressed skepticism about Russia’s promise to de-escalate its military activities around Kyiv. “There is what Russia says and there is what Russia does,” he told reporters. 

Elsewhere, China continues to grapple with its biggest COVID outbreak since the pandemic began. The latest restrictions in Shanghai could lower oil demand by as much as 200,000 barrels a day for the duration of the restrictions, consultant Rystad Energy said in a report.

Late Tuesday, the industry-funded American Petroleum Institute reported that U.S. crude supplies dropped 3 million barrels last week, according to people familiar with the data. The data also showed stockpiles in Cushing, Oklahoma, the biggest storage hub in the U.S., declined by about 1.06 million barrels. The U.S. government will release its weekly inventory tally on Wednesday.

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