Oil prices slumped on Thursday on reports that Russia and Ukraine may start negotiations to end the ongoing conflict, which will complete three years later this month.
Oil prices experienced a significant drop of more than 2% on Wednesday.
This decline was triggered by a series of events related to the ongoing conflict in Ukraine.
US President Donald Trump revealed that he had separate phone conversations with both Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskiy.
During these calls, both leaders expressed a desire for a peaceful resolution to the conflict.
In response to this development, Trump took immediate action by directing US officials to initiate talks aimed at ending the war in Ukraine.
This move towards diplomatic negotiations and the prospect of peace contributed to a decrease in market uncertainty and a subsequent fall in oil prices.
David Morrison, senior market analyst at Trade Nation said:
Crude oil slumped yesterday, losing over 3% during the session.
The selling continued this morning in a move which has now seen front-month WTI give back all its gains made since last Friday.
“The trigger for the sell-off came on raised hopes that there could be a peace deal between Russia and Ukraine,” he added.
At the time of writing, the price of West Texas Intermediate crude oil on the New York Mercantile Exchange was at $70.40 per barrel, down 1.4%.
Brent crude on the Intercontinental Exchange was also 1.4% lower at $74.16 a barrel.
Bearish inventory data
Meanwhile, a rise in US crude oil stockpiles in the week ended February 7 also weighed on sentiments on Thursday.
The US Energy Information Administration reported late on Wednesday that crude oil inventories in the country increased by 4.1 million barrels last week.
Inventories stood at 427.9 million barrels as of last week, which was just 4% below the five-year average.
Source: EIA
“However, this was lower than the 9m barrels build reported by API the previous day. The build was larger when factoring in the SPR, with total US crude oil inventories rising by 4.3m barrels,” analysts with ING Group, said in a note.
Additionally, production in the world’s largest oil producer rose slightly by 16,000 barrels last week to remain near record levels of 13.494 million barrels per day.
However, EIA said that gasoline inventories in the US decreased by 3 million barrels in the week ending February 7.
Oversupply may increase
Meanwhile, analysts believe if the war in Ukraine ends, there will be no reason for the western countries to keep the current sanctions on Russia’s oil exports.
In such a scenario, the world could witness a significant oversupply.
“If there is a peace deal, this should end the sanctions on Russia and its oil exports. This would add supply to a market already drowning in crude at a time when forecasts for global demand growth continue to get revised down,” Morrison added.
The International Energy Agency on Thursday said growth in global oil demand in 2025 is likely to be 1.1 million barrels per day.
This is sharply lower than supply growth, which is estimated at 1.6 million barrels a day this year, according to the IEA.
Demand growth is likely to be subdued this year with China’s economy struggling.
The Asian giant is the world’s largest importer of crude oil.
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