- Oil fell below $100 a barrel Wednesday, unwinding most of the gains made since the Ukraine invasion.
- Washington is continuing to engage with Russia to revive the Iran nuclear deal, a US official said.
- This paves the way for US sanctions against Iran to be lifted, and would allow Iranian oil exports to resume, an analyst said.
Oil prices have entered a bear market, having shed most of the gains made after Russia's invasion of Ukraine, as concern about a supply crunch appeared to ebb and international diplomacy efforts made a release of Iranian oil more likely.
Brent crude futures fell by a modest 0.1% to $99.75 a barrel and West Texas Intermediate lost 0.3% to $96.15 a barrel Wednesday.
Oil surged in the first week or two as Vladimir Putin's invasion of Ukraine triggered a sharp reduction in demand for Russian oil, and commodity traders raced to find alternative sources of fuel to avoid any form of sanctions or restrictions.
Prices have now shed around $10 since the beginning of this week and unwound most of the gains made since the start of the war almost three weeks ago.
Brent is now down 22% from March 8, when it hit as much as $139.13 a barrel, which was its highest in 14 years. A drop of more than 20% from a recent high is considered bear-market territory.
Analysts expect sanctions against Russia will likely remain in place for some time even after the war, deterring many consumers from buying Russian oil.
"A prolonged period of lower Russian supply will underpin prices despite the current threat to demand, not only from temporary Chinese lockdowns, but also from signs high prices have started to cut demand around the world," Saxo Bank's head of commodity strategy Ole Hansen, said.
One factor behind oil's retreat is Russian Foreign Minister Sergei Lavrov saying the US has provided a written guarantee that sanctions against Russia won't have an impact on its trade with Iran. A deal would likely lift some previous sanctions on Iran, which could bring more oil into the world market.
A senior US State Department official confirmed Tuesday that Washington continues to engage with Russia on reviving the Iran nuclear deal, according to Reuters, which is formally called the Joint Comprehensive Plan of Action.
"This appears to remove one major obstacle to the revival of the 2015 nuclear agreement, paving the way for US sanctions against Iran to be lifted and thereby allowing Iranian oil exports to resume," Commerzbank strategist Carsten Fritsch said.
Negotiations between Russia and Ukraine are still ongoing, and Lavrov said he sees some hope in reaching a compromise.
"With fresh, albeit tentative, hope of constructive talks between Ukraine and Russia swirling, there is scope for some further heat to come out the oil price," Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, said.
In its monthly oil report published Tuesday, OPEC said Russia's war is likely to weigh on demand. But because of the rapidly changing situation, it held off on revising forecasts for demand and supply.
In February, OPEC predicted demand would rise by 4.2 million barrels a day and said it expected non-OPEC annual supply growth of 600,000 barrels a day.