Oil prices fell further on Monday, deepening last week’s sharp losses, as traders weighed the potential impact of planned diplomatic talks between Washington and Moscow later this week on the war in Ukraine.
The benchmark Brent crude contract dropped 45 cents, or 0.68 per cent, to $66.14 a barrel by mid-morning in London. US West Texas Intermediate (WTI) futures were down 49 cents, or 0.77 per cent, to $63.39. The declines extend a more than 4 per cent fall in both benchmarks recorded last week, marking one of the sharpest weekly drops in recent months.
Analysts said the price slide reflected a cautious mood among investors, who see the high-level talks as a possible turning point in a conflict that has rattled energy markets for nearly three years. “The market is clearly watching these negotiations very closely,” said Jonathan Byrne, commodities strategist at Aldwych Partners. “If there is even the faintest sign of progress, it could ease some of the geopolitical risk premium that has been baked into oil prices since 2022.”
The US and Russia are set to hold discussions in Geneva on Thursday, with senior officials from both sides signalling that the focus will be on de-escalation and potential humanitarian corridors. While expectations for a breakthrough remain muted, the fact that talks are taking place at all has injected a degree of uncertainty into the market’s near-term outlook.
Lingering economic headwinds
The drop in crude also reflects concerns about global demand. Recent economic data from both Europe and China has underscored a slowdown in manufacturing, fuelling fears that consumption growth could falter. Eurozone industrial production fell for the second consecutive month in July, while Chinese factory output expanded at its slowest pace in over a year.
“The demand side is increasingly coming under scrutiny,” said Sarah Patel, senior energy economist at Barlow & Finch. “It’s not just about Ukraine anymore — we’re looking at a macroeconomic picture that is softer than many had forecast at the start of the year.”
Brent has now slipped more than 12 per cent from its mid-June highs, when fears of a prolonged supply disruption in the Black Sea region pushed prices above $75 a barrel. WTI has traced a similar path. Traders note that, with OPEC+ output holding steady and US shale producers continuing to increase supply, the market has moved from a perceived shortage towards a more balanced — and possibly oversupplied — condition.
OPEC+ holds its line
The Organisation of the Petroleum Exporting Countries and its allies, led by Russia, last week left their production targets unchanged. The decision came despite appeals from some members to consider tightening output to support prices. Delegates said the group would reassess the situation at its next full ministerial meeting in October, by which time the outcome of the US–Russia talks — and the trajectory of demand — should be clearer.
In the meantime, oil traders are also keeping a close eye on US inventory data, due later this week from the Energy Information Administration. A surprise build-up in crude stocks could reinforce the bearish mood, while a drawdown might help stem the selling.
A fragile market balance
Market veterans caution that prices remain highly sensitive to any shift in the Ukraine conflict. While a diplomatic breakthrough could reduce fears of further supply disruptions, renewed fighting or fresh sanctions could quickly reverse the recent trend.
“This is a market that can turn on a dime,” said Byrne. “We’ve seen it repeatedly over the past two and a half years — one headline can send prices swinging several dollars in either direction.”
The prospect of talks has already eased tensions in European gas markets, where prices slipped on Monday for the third consecutive session. Gas traders, too, are watching Geneva closely, though many doubt that any deal would immediately affect pipeline flows from Russia.
Investor positioning shifts
Data from the US Commodity Futures Trading Commission shows hedge funds and other money managers have trimmed their net long positions in crude futures for four straight weeks. That retreat suggests a cooling of speculative enthusiasm, with some traders opting to take profits after this year’s earlier rally.
“The narrative has shifted quite quickly,” said Patel. “In the spring, it was all about tightness and geopolitical risk. Now the focus is on sluggish demand and the possibility — however slim — that diplomacy might change the calculus.”
Currency movements have also played a role. The US dollar strengthened last week on expectations that the Federal Reserve will maintain interest rates at elevated levels into early 2026. A stronger dollar tends to weigh on commodities priced in the currency, making them more expensive for holders of other currencies.
Eyes on Geneva
The Geneva meeting will be the first direct encounter between senior US and Russian officials in over a year. The State Department has said the US will push for a ceasefire and unfettered humanitarian access, while the Kremlin has signalled it wants security guarantees and a loosening of Western sanctions.
Even if no agreement emerges, the talks could set the stage for further negotiations later in the year. That, in turn, might influence not only oil markets but also broader investor sentiment towards risk assets.
For now, traders are treading carefully. “The next few days will likely see relatively thin volumes as people wait for the headlines out of Geneva,” said Byrne. “No one wants to be caught on the wrong side of a big move.”
As the diplomatic clock ticks down, oil prices are likely to remain in a holding pattern — vulnerable to swings in sentiment, but anchored, for the moment, by the hope that the world’s two largest nuclear powers might at least be talking.
