Oil drops due to Russia and Ukraine talks and new lockdowns in China

A customer fills his car with diesel at a gas station in Nice, March 4, 2013. REUTERS/Eric Gillard

LONDON (Reuters) – Oil prices fell by nearly $5 a barrel on Monday as investors pinned their hopes on diplomatic efforts by Ukraine and Russia to end their conflict, while a spike in COVID-19 cases in China frightened markets.

Brent fell $4.67, or 4.1 percent, to $108.00 a barrel at 1000 GMT, and US West Texas Intermediate crude fell $5.71, or 5.2 percent, to $103.62 a barrel.

Both decades have risen since Russia invaded Ukraine on February 24, and are up nearly 40% in the year so far.

Ukrainian and Russian negotiators are scheduled to speak again on Monday via video link. The negotiators gave their most optimistic assessments after the weekend negotiations, indicating that there could be positive results within days. Read more

“Alongside the new talks between Ukraine and Russia, I think the new shutdowns in China are the reason for a negative start to the crude week,” said Giovanni Stonovo, an analyst at UBS.

China, the world’s largest importer of crude oil and second largest consumer after the United States, is seeing a rise in COVID-19 cases, as the transmissible Omicron variant spreads to more cities, leading to an outbreak from Shanghai to Shenzhen.

Daily new case load numbers reached their highest level in two years, with 1,437 new confirmed cases of coronavirus reported on March 13. read more

“This week, market participants are closely following the development of Russian oil exports. Oil flows have not been affected this month so far,” Stonovo added.

Two sources familiar with oil production data told Reuters that Russia’s production of oil and gas condensate rose to 11.12 million barrels per day so far in March, despite sanctions against Russian oil.

The United States announced a ban on Russian oil imports, and Britain said it would phase out them by the end of the year. Russia is the world’s largest 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 production, a senior minister said, following reports that Johnson will travel to the heavyweight in OPEC this week. Read more

“Oil prices may continue to decline this week as investors digest the impact of sanctions on Russia, along with the parties showing signs of negotiating for (a) a ceasefire,” said Tina Ting, analyst at CMC Markets.

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

Oil prices usually move inversely to the US dollar, with the US dollar rising making commodities more expensive for foreign currency holders.

(Bozorgmehr Sharafeddin Report) from London, Additional reporting by Emily Chow in Beijing and Stephanie Kelly in New York; Editing by Edwina Gibbs, Jacqueline Wong and Susan Fenton

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