US oil prices briefly tumbled below $100 a barrel on Tuesday but the losses proved fleeting as investors try to make sense of the latest diplomatic developments in the war in Ukraine.
The selloff began after Russia indicated it will dial back its assault in parts of Ukraine, easing energy supply fears.
Following peace talks between Russia and Ukraine on Tuesday, Russia said it would “drastically reduce” its military assault on the Ukrainian cities of Kyiv and Chernihiv.
US oil tumbled as much as 7% to a low of $98.44 a barrel Tuesday morning. Brent, the world benchmark, dropped to as low as $104.84 a barrel, a decline of nearly 7%.
However, by the end of the day US oil was down just 2%, settling at $110.23 a barrel. Brent fell 1.6% to $104.24 a barrel.
The rebound from the day’s lows reflects uncertainty over the next steps in the war and skepticism that Russia will back up its words with action.
“People have come to their senses,” said Robert Yawger, vice president of energy futures at Mizuho Securities. “There is a realization this is not over. It’s far from over.”
The US Defense Department cautioned Tuesday afternoon that while “small numbers” of Russian forces have moved away from Kyiv, Russia can still inflict “massive brutality” on the city.
“We believe that this is a repositioning, not a real withdrawal,” Pentagon Press Secretary John Kirby said at a press briefing.
Andy Lipow, president of Lipow Oil Associates, said the market has interpreted the latest headlines on Russia-Ukraine negotiations as a “step towards a ceasefire.”
However, investors have learned to treat comments from officials in Russia with a dose of skepticism.
“You could easily take this all to mean Russia is just pulling back to regroup and give it another shot,” Yawger said. “I wouldn’t trust them.”
Even if a ceasefire is eventually reached, supply disruptions may linger. The war has done major damage to Russia’s place in the energy ecosystem.
“I expect sanctions and the oil industry’s desire to move away from Russian supplies will be with us for decades,” Lipow said.
Oil prices plunged on Monday on concerns that lockdowns in Shanghai will sharply cut China’s demand for energy.