Oil drops from 7-year high on report some Russian troops returning to base

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Oil wells pumping outside of Midland Texas.
Joe Sohm | Visions of America | Universal Images Group | Getty Images

Oil dropped from a seven-year high to around $94 a barrel on Tuesday, pressured by a report that some troops in Russia's military districts adjacent to Ukraine are returning to bases, a move that could de-escalate tension between Moscow and the West.

Russia's Interfax news agency cited the defence ministry as saying that while large-scale drills across the country continued, some units of the Southern and Western military districts have completed their exercises and started returning to base.

Brent crude dipped 3.3% to settle at $93.28 per barrel. U.S. West Texas Intermediate (WTI) crude settled 3.55% lower at $92.07 per barrel.

"There are no prizes for guessing the driving force behind this bout of volatility," said Stephen Brennock of oil broker PVM. "The Russia-Ukraine crisis has put the energy market on high alert for possible disruptions of Russian energy supplies."

Both oil benchmarks hit their highest since September 2014 on Monday, with Brent touching $96.78 and WTI reaching $95.82. The price of Brent rose 50% in 2021 as a global recovery in demand from the COVID-19 pandemic strained supply.

Britain's Foreign Secretary Liz Truss said on Tuesday a Russian invasion of Ukraine was highly likely, although Prime Minister Boris Johnson and U.S. President Joe Biden agreed in a call on Monday there was a crucial window for diplomacy.

Investors are also watching talks between the United States and Iran on reviving Tehran's nuclear deal with world powers, which could potentially allow for higher Iranian oil exports.

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, Russia's foreign ministry said.

In other developments, the latest weekly reports on U.S. inventories are expected to show a drop in crude stocks, underlining a tight supply and demand balance.

The first of this week's two reports, from the American Petroleum Institute, is due at 2130 GMT.