Oil Prices Decline Amid Prospects of Russia-Ukraine Peace Deal and Tariff Concerns
Oil prices retreated on Thursday, influenced by expectations of a potential peace accord between Ukraine and Russia that could remove sanctions impacting supply chains. Additionally, U.S. President Donald Trump's proposal to impose reciprocal tariffs further stoked inflationary apprehensions.
Brent crude futures traded at $74.63 per barrel, a decrease of 0.73% or 55 cents, as of 0141 GMT. U.S. West Texas Intermediate (WTI) crude declined by 0.73% or 52 cents, reaching $70.85 per barrel.
The price declines on Wednesday exceeded 2% after Trump revealed that Presidents Putin and Zelenskiy had expressed a desire for peace in separate phone conversations. Consequently, Trump instructed senior U.S. officials to initiate discussions aimed at resolving the Ukraine conflict.
As the world's third-largest oil producer, Russia's sanctions on crude exports imposed due to its invasion of Ukraine almost three years ago have contributed to elevated oil prices.
ANZ analysts expressed optimism in their Thursday note that the potential peace talks could mitigate risks to crude oil supplies, leading to lower oil prices. They highlighted that U.S. and EU sanctions have reduced Russia's production output.
Moreover, Trump's threat of additional tariffs against U.S. trading partners pressured oil prices due to concerns over potential economic slowdown and reduced oil demand. Trump's announcement that reciprocal tariffs would be implemented as early as Wednesday evening against countries imposing duties on U.S. imports heightened fears of an escalating global trade war and accelerated U.S. inflation.
A buildup in crude oil inventories within the U.S., the world's largest crude consumer, further impacted the market. According to the Energy Information Administration (EIA), U.S. crude stocks increased more than anticipated last week. The EIA reported a 4.1 million barrel increase in crude inventories to 427.9 million barrels for the week ending February 7, exceeding the 3 million-barrel rise forecasted by analysts surveyed by Reuters.