Oil prices fell on Thursday, extending the previous day's decline, as hopes of a potential Russia-Ukraine peace deal eased supply disruption fears.
Brent, the benchmark for two thirds of the world’s oil, was trading 0.80 per cent lower at $74.58 a barrel at 1.27pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 0.84 per cent at $70.77 a barrel.
On Wednesday, Brent closed down 2.36 per cent at $75.18 a barrel, while WTI settled 2.66 per cent lower at $71.37 a barrel.
US President Donald Trump said he agreed with Russian President Vladimir Putin on Wednesday to begin talks immediately to end the war in Ukraine.
In a post on the Truth Social platform, Mr Trump said Middle East envoy Steve Witkoff would lead the peace negotiations.
“We have also agreed to have our respective teams start negotiations immediately, and we will begin by calling President [Volodymyr] Zelenskyy, of Ukraine, to inform him of the conversation, something which I will be doing right now,” Mr Trump said.
Oil prices sold off sharply overnight as markets responded to news on direct Russia-US diplomacy, Emirates NBD said in a research note on Thursday.
Russia, one of the world's largest crude producers, has been subject to energy-related sanctions since its invasion of Ukraine in February 2022.
To bypass Western restrictions and a price cap on its oil, a large share of Russia's crude exports is being transported through a global “dark fleet” of ships, which has faced heightened US sanctions in recent weeks.
However, even a quick resolution to the conflict might not result in the immediate easing of sanctions.
"Markets are already buying into the peace agreement, with oil declining for several days in a row now," said Francesco Sassi, research fellow at Ricerche Industriali Energetiche in Bologna.
"They seem confident that Russian oil flows will soon start to return to the market, helped by the loosening of sanctions. Yet, I could not see things moving as quickly as the Trump-Putin call might suggest. Moreover, the EU could de-sanction Russian oil at a different pace compared to the US," he told The National.
Opec+ production cuts, not sanctions, are the primary constraint on supply, some experts say.
Russia has been cutting its production in co-ordination with Saudi Arabia and other Opec+ members, who have collectively reduced oil output by 5.86 million barrels per day (bpd) through a mix of group-wide limits and voluntary cuts by individual nations.
"We view that the prospect of a potential easing of sanctions on Russian oil would unlikely boost oil supply, which is constrained by Opec+ decisions – not sanctions," MUFG said in a research note on Thursday.
Russia's oil production rose slightly to 9.22 million bpd in January this year from 9.12 million bpd in December, the International Energy Agency said in its latest oil market report. The country used to produce close to 11 million bpd before the war.
Concerns about weak fuel demand in the US also contributed to lower oil prices.
US crude inventories, an indicator of fuel demand in the world's largest economy, increased by 4.1 million barrels to 427.9 million barrels in the week that ended on February 7, the US Energy Information Administration said in its weekly report. Analysts polled by Reuters were expecting a gain of only 3 million barrels.
