Brent crude drops below $100 on hopes for Russia-Ukraine negotiations and as lockdowns in China threaten to hurt demand

• Oil prices tumbled 7% Tuesday after Ukraine's Zelenskyy said talks with Russia are set to continue.
• "This development has brightened the prospect of a ceasefire agreement," an analyst said.

Oil prices pulled back a second day to below $100 a barrel Tuesday after Russia and Ukraine looked set to continue diplomatic negotiations and as lockdowns in China threatened to dampen demand.

Brent crude futures were down 7% at $99.18 a barrel as of 7:45 a.m. ET, breaking below $100 for the first time since February. West Texas Intermediate futures were 7.3% lower at $95.43 a barrel.

Investors are eyeing developments in Russia's war with Ukraine after Ukraine's President Volodymyr Zelenskyy said late Monday that negotiations with Russia are set to continue on Tuesday. He also said he spoke to Israel's Prime Minister Naftali to discuss ways to end the fighting and the prospects for peace.

"This development has brightened the prospect of a ceasefire agreement, and could pave the way for a deeper pullback in oil prices," DailyFX strategist Margaret Yang said.

US President Joe Biden is expected to meet with NATO leaders in either Brussels or Poland next Wednesday to discuss the ongoing war, according to Reuters.

Another factor driving oil prices lower is lockdowns in China over its worst COVID-19 outbreak in two years, after the country reported 5,280 new infections Tuesday.

With lockdowns imposed in some key industrial cities, including the entire Jilin province and tech hub Shenzhen, concerns over potential disruption to global supply chains are growing. Jilin and Shenzhen have populations of 24 million and 17 million, respectively.

China is the world's largest oil importer, so lockdowns there threaten to dent demand for crude, too.

"The country alone accounts for a quarter of global oil imports, therefore its economic development tends to have an outsized impact on energy demand," Yang said.

"The prospect of lengthy lockdowns in Chinese cities may cast a shadow over crude oil prices in the weeks to come," she added.

Companies like Toyota, Apple supplier Foxconn, and Volkswagen have been forced to suspend operations for a few days in Shenzhen, China's Silicon Valley.

Jeffrey Halley, senior market analyst at Oanda, noted that Brent crude has fallen almost $40 over recent sessions, in part because of concerns around economic growth in the face of expected interest rate hikes from the Federal Reserve.

Policymakers start their two-day meeting Tuesday, and the Fed is widely expected to raise interest rates by a quarter percentage point at its policy announcement Wednesday, the first hike since 2018.

"The technical picture for oil is now neutral, meaning it could go down OR up from these levels," Halley said in a note. "Any negative developments from Eastern Europe, or a refusal by OPEC+ to pump more, or complete failure of the Iran nuclear deal, could inspire a gigantic, short squeeze."

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