Oil retreated from the highest since 2014 after Russia said some troops are starting to return to their permanent bases after completing drills.
Brent futures fell as much as 3.5% while prices in New York also declined. Crude has swung wildly this week amid a flurry of reports about the tensions over Ukraine. While the United States had earlier warned an invasion may be imminent, Russian Foreign Minister Sergei Lavrov said on Tuesday that diplomatic efforts would succeed in easing the situation. Moscow has repeatedly denied it plans to attack.
Still, North Atlantic Treaty Organisation (Nato) Secretary General Jens Stoltenberg said it was yet to see any signs of reduced Russian presence along the border with Ukraine. The market is holding on to every word in the standoff, with everything from natural gas and metals to global equities reacting to Russia’s comments about the pullback of troops on Tuesday.
"The only thing the market is really focused on at the moment is Russia-Ukraine," said Warren Patterson, head of commodities strategy at ING Groep NV. "So developments on that front will be crucial for price direction."
The underlying oil market is one of the strongest in years. S&P Global Platts assessed the Dated Brent price, which values more than half of the world’s crude, at more than US$99 a barrel on Monday, traders said. Gauges of market strength along the futures curve are trading at some of their firmest levels on record as supply struggles to keep pace with booming demand.
Falling stockpiles have been a major driver of recent gains, and later Tuesday the industry-funded American Petroleum Institute will issue estimates for changes in US holdings. Inventories at the key storage hub at Cushing, Oklahoma have sunk for the past five weeks, according to government data.
US producers are ramping up supplies to take advantage of higher prices. Production from America's Permian Basin rose to a record for a third month in a row in January, topping 5 million barrels a day, according to data from the Energy Information Administration.