OIL FUTURES: Crude prices decline further on easing Ukraine tensions, restart of Iran nuclear talks

Oil futures saw a second down session Feb. 8 amid easing Ukraine tensions and the restart of US-Iran nuclear talks.

NYMEX March WTI settled $1.96 lower at $89.36/b and ICE April Brent declined $1.91 to $90.78/b.

"Ukraine is the big one, [with] the possibility of easing tensions after the Macron talks," Michael Poulsen, Senior Oil Risk Manager at Global Risk Management, said regarding the Feb. 8 price dip.

French President Emmanuel Macron held talks with Russian President Vladimir Putin Feb. 7 about geopolitical tensions building up between Russia and Ukraine. The Kremlin later said the talks failed to reach an agreement to deescalate, according to media reports, but they still worked to ease market concerns any potential disruption to Russian energy supply, analysts said.

"This was an easy trade for energy traders as the bullish run higher has clearly hit some exhaustion," OANDA senior market analyst Ed Moya said in a note. "Oil's weakness was primarily from incremental progress over geopolitical tensions and a stronger dollar that emerged from rising Treasury yields."

The market has also taken as a positive signal the resumption of Iranian nuclear talks, Warren Patterson, the Head of Commodities Strategy at ING, said in his daily note.

Carsten Fritsch, a commodity analyst at Commerzbank, echoed this view, saying, "the reason for the current price weakness is the prospect of a return of Iranian oil exports."

NYMEX March RBOB settled 6.02 cents lower at $2.6251/gal and March ULSD declined 6.28 cents to $2.7926/gal.

The US said late Feb. 7 that a deal was possible with Iran on its nuclear program, but that an agreement had to be completed urgently as Tehran advances its capabilities, according to media reports. The eighth round of talks resumed Feb. 8 in Vienna.

The negotiations have been the top oil supply risk for 2022, with an interim deal potentially increasing exports by 700,000 b/d while a breakdown in talks could escalate geopolitical tensions and global oil prices, according to S&P Global Platts Analytics.

But despite the pullback, analysts said market fundamentals appear bullish as supply and demand balances tighten in the coming weeks.

"Supply is not keeping up with the demand. We know that is the core issue," White House press secretary Jen Psaki said Feb. 8. "Nobody should hold back supply at the expense of the American consumer, particularly as the recovery from the pandemic continues. And oil producers around the world have the capacity to produce at levels that match demand and reduce the high prices."

China's demand is expected to pick up later in February as it begins restocking in the wake of the Lunar New Year holiday.

"I think it's fair to state that China is at a bare minimum operating level in terms of the prescribed level of mandatory stockholding that state enterprises are meant to hold," Mike Muller, head of Vitol Asia, said in a podcast.