Oil prices weakened slightly on Monday as the latest European sanctions on Russian oil are expected to have a minimal impact on supply, but losses were offset by investors weighing the potential for a reduction in diesel supplies.

Brent crude futures fell 7 cents, or 0.1%, to $69.21 a barrel. U.S. West Texas Intermediate crude fell 14 cents, or 0.2%, to $67.20. The European Union on Friday approved its 18th package of sanctions against Russia over its war in Ukraine, which also targets India's Nayara Energy, an exporter of refined Russian crude.

"The market currently believes that supply will still reach the market one way or another. There's not too much concern," said John Kilduff, a partner at Again Capital in New York. Kremlin spokesman Dmitry Peskov said on Friday that Russia has developed some immunity to Western sanctions.

The EU sanctions follow US President Donald Trump's threat last week to impose sanctions on buyers of Russian exports unless Russia agrees to a peace deal within 50 days. ING analysts said part of the sanctions package that is likely to take effect is a ban on EU imports of refined products from Russian oil in third countries, although ING said this could be difficult to monitor and enforce.

Investor concerns about diesel supplies stemming from the sanctions package cushioned some of the losses in crude oil during afternoon trading on Monday, analysts said. "As the day progressed, diesel price spreads started to firm, suggesting the market can't ignore the fact that any disruption in Russian oil supplies could tighten diesel supplies, and that seems to be giving us a little support today," said Phil Flynn, senior analyst at Price Futures Group.

Low-sulfur gas oil futures premium to Brent crude closed Monday at $26.31, up about 3%, marking the highest close since February 2024. "There's little room for error on the crude side; barrel counts can fluctuate slightly, but they're harder to change amidst tight diesel supplies," Flynn added.

Iran, another sanctioned oil producer, is scheduled to hold nuclear talks with Britain, France, and Germany in Istanbul on Friday, an Iranian Foreign Ministry spokesman said Monday. This follows warnings from the three European countries that failure to resume negotiations would lead to the reimposition of international sanctions on Iran.

In the United States, the number of operating oil rigs fell by two to 422 last week, the lowest total since September 2021, Baker Hughes reported on Friday. "Oil-focused drilling is expected to remain at low levels through the end of the year," StoneX analyst Alex Hodes said in a note on Monday. "We are still far from prices that would allow for a significant reduction in investment," Hodes added.

US tariffs on EU imports are set to take effect on August 1, although US Commerce Secretary Howard Lutnick said on Sunday that he is confident the United States can reach a trade deal with the bloc. US tariffs could potentially negatively impact oil demand and economic activity, said Again Capital's Kilduff. Oil inventory data could provide support if it shows tight supplies, said IG market analyst Tony Sycamore. (alg)

Source: Reuters