By Peter Nurse
Investing.com -- Oil prices weakened Tuesday ahead of the restart of indirect nuclear talks between the U.S. and Iran which could result in the return of crude exports from the Persian Gulf country, while tensions surrounding Ukraine eased.
By 9:15 AM ET (1415 GMT), U.S. crude futures traded 1.3% lower at $90.16 a barrel, while the Brent contract fell 1.4% to $91.38, falling from Monday’s seven-year high.
U.S. Gasoline RBOB Futures were down 1.5% at $2.6445 a gallon.
Talks to revive the 2015 Iran nuclear deal in Vienna are due to resume later Tuesday, amid growing optimism that the two sides can come to an agreement that would likely result in the removal of sanctions on Iran’s oil exports.
A deal could return more than 1 million barrels per day of Iranian oil, equating to more than 1% of global supply, to the market.
Adding to the reasons for the market to hand back some of the recent gains was the hope that diplomacy could prevent a Russian invasion of Ukraine. Russian President Vladimir Putin had made encouraging noises after Monday's talks with French President Emmanuel Macron in the Kremlin, saying some of Macron's ideas could form a basis for further joint steps.
U.S. President Joe Biden had earlier warned that if Russia invaded Ukraine, there would be no Nord Stream 2, a project designed by Gazprom (MCX:GAZP) to double the amount of gas flowing from Russia straight to Germany, bypassing traditional transit countries Ukraine and Poland, and seen as a major source of revenue for Moscow.
That said, geopolitical tensions aside, the market fundamentals appear strong as global demand continues to recover from the pandemic and supply remains very tight.
Additionally, China could add more strength if it begins to replenish its crude reserves, even with prices at $90 a barrel.
“I think it’s fair to state that China is at bare-minimum operating level in terms of the prescribed level of mandatory stockholding that state enterprises are meant to hold,” said Mike Muller, Head of Vitol Asia, on Gulf Intelligence’s daily energy markets video. “All eyes are on what happens in China after the Chinese New Year because there’s a feeling that some restocking will be required.”
Elsewhere, attention will turn later in the session to the first of this week's two supply reports, from the American Petroleum Institute, at 4:30 PM ET as usual, while the U.S. will also publish its regular Short-Term Energy Outlook.
In corporate news, BP (NYSE:BP) reported its highest profit in almost a decade, boosted by the sky-high oil and gas prices. The U.K. energy giant also promised to repurchase another $1.5 billion of shares using surplus 2021 cash flow.