Oil prices soften amid hopes for Russia-Ukraine peace talks

Oil prices dipped on Monday as traders clung to hopes that peace talks between Russia and Ukraine would make headway.

Oil prices have surged to record highs following Russia’s invasion of Ukraine, with benchmark Brent crude touching nearly $140 a barrel at one point.

Prices started to pull back from highs last week, however, and continued to soften on Monday. As at 0930 GMT, benchmark Brent crude was trading 3% lower at $109.15 a barrel while West Texas Intermediate was down 4% at $105.08 a barrel.

Moscow has claimed that "substantial progress" had been made in talks and that a "joint position" could be reached soon, it was reported on Monday by the state-controlled Russian news agency RIA. A day earlier, Ukrainian negotiator Mykhailo Podolyak also said he thought progress could be made in the coming days.

However, Russia has continued its attacks on Ukraine, including targeting a military base in Yavoriv, close to the Polish border.

Neil Wilson, chief market analyst at Markets.com, said: "Oil lower, stocks firmer…on what? Moscow claims ‘substantial’ progress in peace talks while escalating conflict. But that is enough for traders grabbing onto any good headline."

Naeem Aslam, chief market analyst at AvaTrade, said: "Oil traders have been hoping that they will get better news on the Russia and Ukraine war, as there was some optimism that peak talks were moving in the right direction.

"However, the weekend’s events have disrupted that optimism and we are expecting the oil prices to continue their bull run and remain immensely volatile."

Michael Hewson, chief market analyst at CMC Markets UK, said: "One sliver lining from last week was the fact that we saw a softening in commodity prices, in a week that saw crude oil prices post their biggest weekly drop since November, despite hitting their highest levels since 2008."

But he also noted: "Some of last week’s rebound for markets in Europe was because of some fragile optimism that peace talks might actually lead somewhere. However, this optimism is slowly turning into a realisation that the gap between the two parties is too wide to bridge."

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: "Brent crude has dipped as traders assess unfolding diplomatic efforts, and await key reports on the global supply of oil from Opec and the IEA. But the stage is still set for a fluctuation in price, given concerns that Opec+ countries may not easily be able to increase supply, while a breakthrough in the stalled Iran nuclear talks remains elusive.

"The widely expected decision by the US central bank to start raising interest weeks this week could also help release the upwards pressure on the oil prie, as a stronger dollar makes commodities more expensive for buyers using other currencies."

The Federal Open Market Committee is due to meet on Wednesday.