Oil prices dropped on Tuesday as investors scooped up profits from the previous day’s rally to seven-year highs and as global stock markets slumped, although lingering concerns that Russia might invade Ukraine and disrupt energy supplies limited losses.
U.S. West Texas Intermediate (WTI) crude dropped $3.58, or 3.78%, to $91.22 a barrel, after gaining $2.36 the previous day.
Brent crude futures were at $92.56 a barrel, down $3.12, or 3.26%, after rising $2.04 on Monday.Both benchmarks hit their highest since September 2014 on Monday, with Brent touching $96.78 and WTI reaching $95.82.
Russia is one of the world’s largest oil and gas producers, and fears it could invade Ukraine have driven a rally in oil towards $100 per barrel, a level not seen since 2014.
“Profit-taking weighed on the market while there was little fresh fundamental news and concerns over the Ukraine situation remained unchanged,” said Tsuyoshi Ueno, senior economist at the NLI Research Institute.
“Investors are in a wait-and-see mood amid uncertainty over the conflict between Russia and Ukraine as well as the U.S.-Iran nuclear talks,” he said.
Portfolio managers are still bullish on the outlook for oil. But prices have already risen by more than 30% in less than three months and there are growing concerns about rising inflation and interest rates, prompting fund managers to take some profit last week.
Investors are also watching talks between the United States and Iran. The Iranian foreign minister said Iran was “in a hurry” to reach a swift agreement in nuclear talks in Vienna, provided its national interests are protected.
Russian Foreign Minister Sergei Lavrov spoke to his Iranian counterpart Hossein Amirabdollahian on Monday and they noted a “tangible move forward” in reviving the Iran nuclear deal, the Russian foreign ministry said.
“Oil markets may see a real correction if the Iran-U.S. nuclear deal is agreed or global equities tumble further amid worries over inflation and tighter monetary policy by central banks,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities.
Asian share benchmarks dropped on Tuesday as investors contemplated the implications of a potential imminent Russian invasion of Ukraine.
Ukrainian President Volodymyr Zelenskiy called on Ukrainians to fly the country’s flags from buildings and sing the national anthem in unison on Feb. 16, a date that some Western media have cited as a possible start of a Russian invasion.
Meanwhile, an upward revision in historical oil demand by the International Energy Agency in its monthly report points to a tighter global market than the West’s energy watchdog had previously estimated.
Shortfalls in production by OPEC+, the Organization of the Petroleum Exporting Countries and allied producers, and spare capacity concerns are likely to keep the oil market tight and prices could hit $125 a barrel as early as the second quarter of this year, JP Morgan Global Equity Research said.