Oil prices fall on Russia-Ukraine talks and ahead of Fed rate meeting

BEIJING (REUTERS) - Oil prices shed as much as US$4 a barrel on Monday (March 14), extending last week’s decline as diplomatic efforts to end the war in Ukraine geared up and markets braced themselves for higher US interest rates.

Brent crude futures were last down by US$3.81, or 3.4 per cent, at US$108.86 a barrel at 2.41pm Singapore time.

US West Texas Intermediate (WTI) crude futures eased US$3.85, or 3.5 per cent, to US$105.48 a barrel.

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

Ukrainian and Russian negotiators are set to talk again on Monday via video link after both sides cited progress.

Negotiators had given their most upbeat assessments after weekend negotiations, suggesting there could be positive results within days.

Russia’s invasion has roiled energy markets globally.

“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 ceasing fire,” said Ms Tina Teng, an analyst at CMC Markets.

“As markets had priced in for a much tighter supply from February to early March, the focus is shifting to the monetary policy in the upcoming FOMC meeting this week, which could strengthen the US dollar further, and pressuring on commodity prices,” she added, referring to the US Federal Open Market Committee, which meets on Tuesday and Wednesday to decide whether or not to raise interest rates.

US consumer prices had surged in February, leading to its largest annual increase in inflation in 40 years, and is set to accelerate further as Russia’s war against Ukraine drives up the costs of crude oil and other commodities.

The Federal Reserve is expected to start raising rates this week, which would put downward pressure on oil prices.

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

Brent already lost 4.8 per cent last week and US WTI fell 5.7 per cent, both posting their steepest weekly decline since November.

That was after both contracts hit their highest levels since 2008 earlier in the week on supply concerns after US and European allies considered banning Russian oil imports.

The United States later announced a ban on Russian oil imports and Britain said it would phase them out by year end.

Russia is the world’s top exporter of crude and oil products combined, shipping around seven million barrels a day, or 7 per cent of global supplies.

“The Russia-Ukraine situation is very fluid and the market is going to be sensitive to developments on this front. Suggestions that parties may be willing to negotiate is likely weighing on prices somewhat,” said Mr Warren Patterson, head of commodity research at ING.

“In addition, growing Covid-19 cases in China will raise concerns over demand. China is seeing its worst Covid-19 outbreak in more than two years. The city of Shenzhen has gone into lockdown, while other cities are also seeing tougher restrictions.”

China is the world’s largest crude oil importer and second-largest consumer after the US.

While China’s case count is far lower than those in many other countries, its “zero-Covid-19” stance has led government authorities in affected regions to impose targeted lockdowns, conduct mass testing, shut schools and suspend public transport to suppress contagion as quickly as possible.