Oil drops on positive signals from Russia-Ukraine peace talks

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An oil well pump jack operated by Chevron Corp. in San Ardo, California, U.S., on Tuesday, April 27, 2021.
David Paul Morris | Bloomberg | Getty Images

Oil prices dropped on Tuesday, extending losses from the previous day after Russia called peace talks with Ukraine constructive and China's new lockdowns to curb the spread of the coronavirus hit fuel demand.

Brent crude fell 2%, or $2.25, to end the day at $110.23 a barrel. U.S. West Texas Intermediate (WTI) crude settled 1.62%, or $1.72, lower at $104.24 per barrel. Both benchmarks lost about 7% on Monday.

Ukrainian and Russian negotiators met in Turkey for the first face-to-face talks in nearly three weeks. The top Russian negotiator said the talks were "constructive".

Ukraine proposed adopting neutral status in exchange for security guarantees at the talks, meaning it would not join military alliances or host military bases, Ukrainian negotiators said.

"Oil prices are under pressure again on expectations about peace talks between Ukraine and Russia, which could lead to an easing of sanctions ..." said Hiroyuki Kikukawa, general manager of research at Nissan Securities.

Sanctions imposed on Russia over its invasion of Ukraine have disrupted oil supplies, driving prices higher.

Prices also came under pressure after new lockdowns in Shanghai to curb rising coronavirus cases hit fuel demand in China, the world's biggest importer.

Shanghai accounts for about 4% of China's oil consumption, ANZ Research analysts said.

Lockdowns have dampened consumption of transportation fuels in China to a point where some independent refiners are trying to resell crude purchased for delivery over the next two months, traders and analysts said.

"China's zero-COVID policy is bringing some relief to the oil market, albeit involuntarily, which is very tight due to the supply outages from Russia," said Commerzbank analyst Carsten Fritsch.

Oil prices rose almost $2 earlier in the day as Kazakhstan's supplies continued to be disrupted and major producers showed no sign of being in a hurry to boost output significantly.

Kazakhstan is set to lose at least a fifth of its oil production for a month after storm damage to mooring points used to export crude from the Caspian Pipeline Consortium (CPC), the energy ministry said.

The producer group OPEC+ was also expected to stick to its plan for a modest rise in May at this week's meeting, despite a surge in prices due to the Ukraine crisis and calls from the United States and other consumers for more supply.

The energy ministers of Saudi Arabia and the United Arab Emirates, key members of OPEC+, said the producers' group should not engage in politics as pressure mounted on them to take action against Russia over its invasion of Ukraine.