Oil prices slipped 2% on Monday after Iraq restored production at one of its oilfields which accounts for 0.5% of world oil supply, while investors weighed ongoing talks to end the war in Ukraine.

Brent crude futures were down $1.26, or 1.98%, at $62.49 a barrel, while U.S. West Texas Intermediate crude was at $58.88, down $1.20, or 2%.

Iraq restored production at Lukoil's West Qurna 2 oilfield, one of the world's largest, after a leak on an export pipeline slashed its output, two Iraqi energy officials told Reuters on Monday.

Prices had marginally pared losses earlier after sources told Reuters that Iraq had shut down production at the field, which produces around 460,000 barrels per day.

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 U.S. 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.

Any geopolitical risk premium will be weighed against signs of a growing global surplus, with rising OPEC+ and non-OPEC supply outpacing modest demand growth, Aegis Hedging analysts said in a note on Monday.

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.

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.

That would likely further curb supply from the world's second-largest oil producer.

The U.S. has also ramped up pressure on OPEC member Venezuela, 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.

Meanwhile, U.S. crude oil stockpiles were expected to have fallen last week, while distillate and gasoline inventories likely rose, a preliminary Reuters poll showed on Monday.

Source: Investing.com