Oil dips from seven-year high as Russia tensions offset Fed tightening

3 minute read

The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, U.S., November 22, 2019. REUTERS/Angus Mordant

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  • Brent hit $90 on Wednesday for first time in seven years
  • Russia open to talks as U.S. rejects key security demands
  • U.S. Fed likely to tighten monetary policy in March

NEW YORK, Jan 27 (Reuters) - Oil prices eased on Thursday after Brent crude hit a seven-year high above $90 a barrel, as the market balanced concerns about tight worldwide supply with expectations the U.S. Federal Reserve will soon tighten monetary policy.

Benchmark Brent fell 15 cents to $89.81 a barrel by 1:17 p.m. EST (1817 GMT), while U.S. crude fell 20 cents to $87.15 a barrel in a volatile session with both contracts see-sawing between positive and negative territory.

Prices had surged on Wednesday, with Brent climbing above $90 a barrel for the first time in seven years amid tensions between Russia and the West. Threats to the United Arab Emirates from Yemen's Houthi movement had added to oil market jitters.

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Russia, the world's second-largest oil producer, and the West have been at loggerheads over Ukraine, fanning fears that energy supplies to Europe could be disrupted, although concerns are focused on gas supplies rather than crude. read more

Russia said on Thursday it was clear the United States was not willing to address Moscow's main security concerns in their standoff over Ukraine, but kept the door open for dialogue. read more

"The market is very erratic on headlines on the Russia-Ukraine situation," said Phil Flynn, senior analyst at Price Futures Group. "There's uncertainty about what's going to happen."

Weighing on prices, the U.S. Federal Reserve said on Wednesday it was likely to raise interest rates in March and planned to end its bond purchases that month to tame inflation.

The U.S. dollar climbed after the announcement, making oil more expensive for buyers using other currencies. On Thursday, the dollar index climbed to the highest since July 2021.

"A more pronounced price slide is being prevented by the Ukraine crisis, as there are still concerns that Russian oil and gas deliveries could be hampered in the event of a military escalation," Commerzbank said after the morning price dip.

The market is starting to turn its attention to a Feb. 2 meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, a group known as OPEC+.

OPEC+ is likely to stick with a planned rise in its oil output target for March, several sources in the group told Reuters. read more

It has raised its output target each month since August by 400,000 barrels per day (bpd) as it unwinds record production cuts made in 2020.

However, the group has faced capacity constraints that have prevented some members from producing at their quota levels. read more

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Reporting by Stephanie Kelly in New York; additional reporting by Ahmad Ghaddar and Noah Browning in London and Emily Chow in Beijing; Editing by Marguerita Choy and Edmund Blair

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