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Oil and gas prices drop sharply ahead of Ukraine-Russia peace talks

Oil and gas industry. Oil pump oil rig energy industrial machine for petroleum in the sunset background, Increase in oil production
Oil and gas industry. Oil pump oil rig energy industrial machine for petroleum in the sunset background, Increase in oil production

The prices of oil and gas continue to come down after a wild week of market volatility amid hopes of a diplomatic resolve to the war in Europe as Ukraine and Russia are set to resume talks on Monday.

Crude prices posted their biggest weekly drop since November last week, despite hitting their highest levels since 2008 as traders assessed the damage to global supply from the war.

Brent crude (BZ=F) was down 4.1% to $108.07 (£82.86) a barrel in early trade on Monday in London. US light crude (CL=F) fell 4.8% to $104.04 in electronic trading on the New York Mercantile Exchange.

The UK and US’s announcement of a ban on Russian oil and oil products further pushed prices higher, but they pulled back sharply throughout the week as some producing countries signalled they may boost supply.

Uncertainty over the US-Iran nuclear deal also added to the market's volatility, raising fears over supply as talks to revive the 2015 pact faced the threat of collapse after a last–minute Russian demand forced the countries to pause talks.

European benchmark gas prices (NG=F) dropped sharply on Monday as Russian and Ukrainian officials are due to hold talks over video link later today.

Dutch natural gas futures fell as much as 16% on Monday, while UK gas futures dropped over 12%.

Brent crude fell 4.1% to $108.04 a barrel on Monday. Chart: Yahoo Finance
Brent crude fell 4.1% to $108.04 a barrel on Monday. Chart: Yahoo Finance UK

Despite lower oil prices, which led to a cut in wholesale costs for fuel retailers, drivers are still feeling the impact at the pumps as fuel prices broke another record over the weekend.

Fuel price movements in the UK are mainly determined by the price of crude oil, and the exchange rate between sterling and the US dollar as crude is traded in dollars.

The average cost of a litre of petrol at UK forecourts on Sunday was 163.46p, while diesel was 173.44p, according to figures from RAC.

RAC fuel spokesman Simon Williams said the average price of petrol "appears to be on a collision course with £1.65 a litre".

He added: "While there will almost certainly be more rises this week, drivers should soon get some respite from pump prices jumping by several pence a litre every day as oil and wholesale prices appear to have settled.

"The price hikes seen over the weekend are still a result of the oil price rise which began at the start of the month and peaked early last week at $137 a barrel.

"As the oil price has now fallen back, we should hopefully reach the peak and start to see prices going the other way to reflect the big drop in wholesale costs seen at the end of last week, subject to no further spikes in the barrel price this week."

Read more: How to save money on fuel costs

Other commodities also headed lower. Wheat prices also saw a big weekly decline — the biggest in over a decade, despite also soaring to new record highs.

Meanwhile, the price of Nickel, a key battery metal produced by Russia, surged after trades placed by Chinese tycoon Xiang Guangda on the London Metal Exchange contributed to an uncontrollable rise in prices.

The price of Nickel soared over $100,000 per tonne before trading of the commodity was suspended. The metal, which is used in stainless steel and lithium-ion batteries, ended last year at $20,757 a tonne.

Some of the world's biggest banks, led by US investment bank JP Morgan (JPM) are reportedly looking to resolve the crisis which could leave them potentially footing billions of dollars owed by Chinese metals giant Tsingshan Holding Group.

The banks, including Standard Chartered (STAN.L) are said to be in "advanced talks" for a loan facility to backstop the steel and nickel producer's short position and restore market stability, Bloomberg reported.

Experts say there has been a gradual shift in thinking, and that the transitory narrative over prices is "dead in the water and has been for some time".

"In a week that has seen prices across the commodity complex post multiyear, as well as new record highs, concerns over rising prices, and whether they are transitory or not has been increasing, against a backdrop that central banks are way behind the curve," said Michael Hewson, chief market analyst at CMC Market.

Watch: Why are gas prices rising?