NEW YORK: Oil prices fell about 2% on Thursday as talks to resurrect a nuclear deal with Iran entered their final stages which could unlock more crude supplies, but losses were limited by heightened tensions between top energy exporter Russia and the West over Ukraine.
"(The) oil market is locked in a tug of war between Iranian sanctions relief and Russian-Ukraine tensions," said Stephen Brennock at brokerage PVM Oil.
Brent futures fell $1.80, or 1.9%, to $93.01 a barrel by 11:42 a.m. EST (1642 GMT), while U.S. West Texas Intermediate (WTI) crude fell $1.76, or 1.9%, to $91.90.
Both benchmarks rose to their highest levels since September 2014 earlier in the week and both continue to face extreme backwardation in coming months, a market structure where prompt contracts are more expensive than those for later dates, indicating supply tightness.
Futures for Brent and WTI through August were in what Robert Yawger, executive director of energy futures at Mizuho, has called "super-backwardation" with each month trading at least $1 a barrel below the prior month.
Oil resumes rally as Russia-Ukraine tensions stay high
The United States is in "the midst of the very final stages" of indirect talks with Iran, aimed at salvaging a 2015 deal limiting Tehran's nuclear activities, State Department spokesperson Ned Price said on Wednesday.
A deal could return more than 1 million barrels per day (bpd) of Iranian oil to the market, boosting global supply by about 1%.
A decision on salvaging the nuclear deal was said by France on Wednesday to be only days away and that it was up to Tehran to make the political choice, though Iran called on Western powers to be "realistic."
With a new deal possibly on the horizon, South Korea said on Wednesday it had held talks on resuming imports of Iranian crude oil and unfreezing Iranian funds. South Korea was previously one of Tehran's leading oil buyers in Asia.
However, continuing tensions over a possible Russian invasion of Ukraine continues to support oil markets because of the potential disruption to energy supplies.
U.S. President Joe Biden said there was now every indication Russia was planning to invade Ukraine, including signs Moscow was carrying out a false flag operation to justify it, after Ukrainian forces and pro-Moscow rebels traded fire.
Russian-backed rebels and Ukrainian forces traded accusations that each had fired across the ceasefire line in eastern Ukraine.
Moscow's announcement of a partial pullback of troops from near Ukraine this week was countered by Western governments warning that Russia was building up military presence near the Ukraine border.