Oil slipped towards $125 a barrel in volatile trading on Wednesday as investors assessed the US ban of Russian oil imports and Russia announced a new ceasefire in Ukraine on Wednesday to let civilians flee.
A view that the US ban of Russian oil imports may not worsen shortages kept a lid on prices, traders said, as did talk that Ukraine was no longer seeking NATO membership after some news reports this week on the issue, reports Reuters.
"Maybe this is playing its part," said Tamas Varga of oil broker PVM said of the Ukraine NATO membership issue.
"The realisation that the US import ban might not materially make the current supply shock worse than it has been might have also triggered this bout of profit-taking," he added.
Brent crude fell $2.27, or 1.8 per cent, to $125.71 a barrel at 1105 GMT, after earlier rising above $131. US West Texas Intermediate (WTI) fell $3.19, or 2.6 per cent, to $120.51.
Oil also fell as the head of the International Energy Agency described the agency's decision last week to release 60 million barrels of oil reserves to compensate for supply disruptions following Russia's invasion as "an initial response" and that more could be released if needed.
Oil has surged since Russia, the world's second-largest crude exporter, launched what it called a "special operation" in Ukraine. Brent hit $139 on Monday, its highest since 2008.
On Wednesday, Russia announced a new ceasefire in Ukraine to let civilians flee besieged cities, after days of mostly failed promises that have left hundreds of thousands of Ukrainians trapped without access to medicine or fresh water.
In addition to the US decision, Britain also said on Tuesday it would phase Russian imports out and Shell said it would stop buying Russian crude. JP Morgan estimated around 70 per cent of Russian seaborne oil was struggling to find buyers.
One potential source of extra oil supply is Iran, which has been in talks with Western powers for months on restoring a deal which lifted sanctions on Iran in return for kerbs on its nuclear programme.
Iran's chief negotiator in the Vienna talks returned to the Austrian capital on Wednesday. read more
Amid concern over supply shortages, there are some signs the market is not short of crude yet.
US crude inventories rose by 2.8 million barrels, according to market sources, citing figures from the American Petroleum Institute, an industry group, on Tuesday. Official US inventory figures are due at 1530 GMT.
