Oil prices traded slightly lower on Monday as investors assessed the potential impact of ceasefire discussions between Russia and Ukraine, which could lead to an increase in Russian crude supply to global markets.
By 3:30 pm AEDT (4:30 am GMT) Brent crude futures declined $0.28, or 0.4% to US$71.88 per barrel, while U.S. West Texas Intermediate (WTI) crude dipped $0.25 or 0.4% to $68.03 per barrel.
The downturn follows a second consecutive weekly gain for both benchmarks, supported by fresh U.S. sanctions on Iran and the latest supply strategy from the OPEC+ alliance, which raised expectations of tighter market conditions.
A U.S. delegation is set to engage in ceasefire negotiations with Russian officials on Monday, following discussions with Ukrainian diplomats over the weekend.
Any breakthrough in the talks could impact energy markets by easing geopolitical risks and potentially increasing Russian crude exports.
OPEC+, which includes the Organisation of the Petroleum Exporting Countries and allies like Russia, recently issued a revised production schedule requiring seven member nations to implement deeper supply cuts to offset previous overproduction.
These reductions are expected to outpace the group's planned output hikes next month.
Since 2022, OPEC+ has been curbing production by 5.85 million barrels per day (bpd), equivalent to approximately 5.7% of global supply, in a bid to stabilise the market.
The group confirmed on March 3 that eight members would proceed with a modest monthly increase of 138,000 bpd from April, citing improved market fundamentals.
Market participants are also closely watching the effects of new U.S. sanctions targeting Iran’s oil sector.
ANZ analysts commented in a note to clients: "The U.S. Department of Treasury sanctioned a Chinese oil refinery and its chief executive officer (for allegedly buying Iranian oil) and several vessels linked to a shadow fleet of ships.
"The move is having an impact on the physical market, with spot and near-term futures gaining for oil from the Middle East. Asian traders are said to be holding back from purchasing Iranian crude.
"There are also growing expectations that OPEC will not end up delivering the planned production hikes. Members who have been persistently flouting current quotas announced new plans last week to make additional cutbacks to compensate for the overproduction."
The sanctions have led to a near-term decline in Iranian oil shipments to China, pushing up transportation costs. However, traders anticipate that buyers will explore alternative methods to sustain at least some level of Iranian crude imports.
