Oil prices fell on Monday as investors monitored ongoing talks to end the war in Ukraine and ahead of an expected U.S. Federal Reserve interest rate cut this week.

Brent crude futures fell by 56 cents, or 0.9%, to $63.18 a barrel by 1348 GMT, while U.S. West Texas Intermediate crude was at $59.51, down 57 cents, or 1%.

Prices marginally pared losses after sources on Monday told Reuters that Iraq shut down the entire oil production at Lukoil's West Qurna 2 field of around 460,000 barrels per day due to a leak on an export pipeline.

Both contracts closed Friday's trading session at their highest levels since November 18.

"If there's any kind of agreement reached in the near future on Ukraine, then Russian oil exports should increase and put downward pressure on oil prices," said Tamas Varga, oil market analyst at PVM.

Markets are meanwhile pricing in an 84% chance of a quarter-point cut at the Fed meeting on Tuesday and Wednesday, LSEG data showed. However, board member comments indicate the meeting is likely to be one of the most divisive in years, intensifying investor focus on the bank's policy direction and internal dynamics.

SLOW PROGRESS ON UKRAINE

Progress on Ukraine peace talks remains slow, with disputes over security guarantees for Kyiv and the status of Russian-occupied territory still unresolved even as President Donald Trump presses for a deal. Ukrainian President Volodymyr Zelenskiy was meeting European leaders in London on Monday.

"The various potential outcomes from Trump's latest push to end the war could release a swing in oil supply of more than 2 million barrels per day," ANZ analysts said in a client note.

Commonwealth Bank of Australia analyst Vivek Dhar said a ceasefire is the main downside risk to the outlook for oil prices, while sustained damage to Russia's oil infrastructure is a significant upside risk.

"We think oversupply concerns will eventually be realised, especially as Russian oil and refined product flows eventually circumvent existing sanctions, prompting futures to gradually track towards $60/bbl through 2026," Dhar said in a client note.

NEW CURBS ON RUSSIAN EXPORTS?

In the meantime, Group of Seven countries and the European Union are in talks to replace a price cap on Russian oil exports with a full maritime services ban, people familiar with the matter told Reuters, which would likely further curb supply from the world's second-largest oil producer.

The U.S. has also ramped up pressure on Venezuela - part of the Organization of the Petroleum Exporting Countries - including strikes against boats it said were attempting to smuggle illegal drugs, and talk of military action to overthrow President Nicolas Maduro.

Elsewhere, Chinese independent refiners have stepped up purchases of sanctioned Iranian oil from onshore storage tanks using newly issued import quotas, trade sources and analysts said, easing a supply glut.

Source: Investing.com