Oil prices fell on Tuesday, extending losses from the previous session, as growing optimism over a potential Russia-Ukraine peace deal fuelled expectations that sanctions on Russian energy exports could be eased, adding supply to an already well-supplied market.
Brent crude oil, against which Nigerian crude oil is priced, declined by 35 cents, or 0.6 percent to $60.21 a barrel by 08:20 a.m. in Nigeria, while U.S. West Texas Intermediate crude slipped 35 cents or 0.6 percent to trade at $56.47 a barrel.
The decline followed reports of progress in diplomatic talks aimed at ending the Russia-Ukraine war, an outcome that markets believe could eventually pave the way for the return of sanctioned Russian oil volumes.
Analysts noted that even the prospect of sanctions relief is enough to weigh on prices given current supply dynamics.
ANZ analysts said crude prices fell as markets assessed signs of optimism around a possible peace agreement, adding that such an outcome could ultimately lead to the lifting of recent U.S. sanctions on Russian oil companies. This, they warned, would further loosen supply conditions in a market that is already facing ample availability.
The United States has reportedly offered NATO-style security guarantees to Ukraine, while European negotiators signalled progress in talks on Monday. Although disagreements remain, particularly over territorial concessions, the developments have strengthened market expectations that negotiations may be moving closer to a resolution.
Beyond geopolitics, concerns over global demand added to the downward pressure. Fresh economic data from China showed factory output growth slowing to a 15-month low, while retail sales expanded at their weakest pace since December 2022.
The data reinforced fears that demand from the world’s largest oil importer may be softening at a time when supply growth remains strong.
IG market analyst Tony Sycamore said the weaker Chinese data heightened concerns that global demand may not be sufficient to absorb recent increases in supply.
He added that China’s strategy of leaning on exports to offset weak domestic consumption appears to be losing momentum, a development that could further dampen oil demand.
China’s oil consumption outlook is also being challenged by structural shifts, including the rapid adoption of electric vehicles, which has begun to weigh on petroleum demand growth in the transport sector.
A cooling Chinese economy would therefore pose a significant downside risk to global oil demand projections.
Supply-side concerns that might otherwise have supported prices were largely offset. While the United States seized an oil tanker off the coast of Venezuela last week, traders said the impact on supply has been muted.
Analysts pointed to high levels of floating storage and a surge in Chinese purchases of Venezuelan crude ahead of potential sanctions as factors limiting the market reaction.
With geopolitical risks easing and demand signals weakening, market participants remain cautious. Traders said oil prices are likely to stay under pressure in the near term unless there is a clear shift in either demand fundamentals or supply discipline from major producers.
For now, expectations of higher supply from Russia, combined with slowing economic momentum in China, continue to anchor sentiment, keeping crude prices on the defensive.