Oil traded near $107 a barrel in New York as investors monitored developments from the gathering of Group of Seven leaders, and two supplier countries flagged potential output cuts due to political unrest.
West Texas Intermediate reversed earlier gains in choppy trading. The G-7 will commit to providing indefinite support to Ukraine for its defense against Russia, a draft statement showed. The group is also weighing a price cap on Russian crude. Meanwhile, Iran said talks to revive the 2015 nuclear deal with world powers will resume this week.
“Sentiment has clearly shifted and investors see the catalysts for upside limited and risks to downside expanding,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. Headlines of Iranian talk resuming are adding to list of potential risks, she said.
Fears of a demand-sapping recession also hang over the market. Oil is heading for its first monthly decline since November. However, retail prices for gasoline and diesel haven’t fallen anywhere near as fast as crude, amid a recovery from Covid-19 and a shortage of refining capacity to make fuels.
Libya’s National Oil Corp. signaled a potential dent in supply due to a worsening political crisis. Protests could force the company to declare force majeure, a clause in contracts allowing shipments to be halted, within 72 hours, according to a statement on Monday. Ecuador could halt oil production even quicker due to anti-government unrest, the energy ministry there said.
G-7 leaders and officials have been discussing a potential price cap on Russian oil, but an agreement has yet to be reached, according to people with knowledge of the matter. The proposed mechanism would work by imposing restrictions on insurance and shipping, they said.
WTI for August delivery fell $1.21 to $106.41 a barrel at 9:51 a.m. in New York
Brent for August settlement slipped $1.09 to $112.03 a barrel
Time-spreads that traders watch as supply-demand indicators also remained strong. Second-to-third month spreads for both Brent and WTI are at around the $3 a barrel mark, pointing to an urgent need for supply.
The revival of the Iranian nuclear deal could meant that crude from the country will flow back onto global markets.
The US and Iran will restart talks in the “coming days,” the European Union’s chief diplomat Josep Borrell said on Saturday. Discussions will be indirect, with the EU acting as a mediator, and take place in a Persian Gulf nation, Iranian media quoted Borrell as saying later the same day.
Last week, the US Energy Information Administration delayed its weekly snapshot of nationwide stockpiles and demand following a power disruption. The agency expects to provide an update on the situation later on Monday.