By Peter Nurse
Investing.com -- Oil prices slumped Tuesday, falling from seven-year highs, after Russia announced that some of its troops are returning to base after drills on the Ukrainian border, resulting in some of the associated risk premium leaving the market.
By 9:10 AM ET (1410 GMT), U.S. crude futures traded 3.6% lower at $92.03 a barrel, while the Brent contract fell 3.2% to $93.38.
U.S. Gasoline RBOB Futures were down 3.2% at $2.6911 a gallon.
Russia’s Defense Ministry said earlier Tuesday that some of the more than 100,000 troops involved in exercises on the border with Ukraine would return to their bases.
The comments were accompanied by video purportedly showing tank formations and heavy equipment moving away from their previous positions on the Ukrainian border.
Fears that Russia, one of the world’s largest oil and gas producers, could invade Ukraine have been behind crude’s rally toward $100 per barrel, up to levels not seen since 2014.
That said, even with today’s selloff, shortfalls in output from the top producers and spare capacity concerns are also likely to keep the oil market tight and prices could hit $125 a barrel as early as the second quarter of this year, according to JPMorgan (NYSE:JPM).
Although the Organization of the Petroleum Exporting Countries and their allies, a group known as OPEC+, has pledged to increase the amount supplied to the general market every month since August, many of the relevant countries have struggled to increase their output.
Another potential source of increased output could come from Iran, after Russian Foreign Minister Sergei Lavrov noted on Monday a "tangible move forward" in talks to reviving the 2015 nuclear deal.
A deal could lift U.S. sanctions on Iranian oil, leading to the potential return of more than one million barrels a day, more than 1% of global supply, to the global market.
Elsewhere, U.S. supply data will be made available at 4:30 PM ET when the American Petroleum Institute publishes its weekly inventory report. Analysts expect a drop of some 1.8 million barrels from last week.
“The EIA released its latest drilling productivity report yesterday, which showed that U.S. shale output is forecast to rise to 9.71MMbbls/d in March, up from an estimated 8.6MMbbls/d in February,” said analysts at ING, in a note.