Sonali Paul

MELBOURNE, (Reuters) – Oil prices rose on Wednesday on the back of hopes for progress in Ukraine-Russian peace talks and a reminder that supply is tight since stocks dropped sharply last week.

Futures reached a peak of $112.78 just after opening. They were also up 1.2% at $111.58 GMT (or $1.35 at 0005 GMT), reversing the 2% losses in previous sessions.

U.S. West Texas Intermediate oil futures rose 1.2% or $1.29 to $105.53 per bar. This erases Tuesday’s 1.6% drop.

According to market sources, the focus shifted to tight supply after the American Petroleum Institute reported that crude oil stocks dropped by 3,000,000 barrels during the week ending March 25. [API/S]

This was three times the average decline of Reuters-surveyed analysts.

Following Russia’s promises to cut down its military operations near Kyiv and in another city more than a month ago, which was more than a month since the incursion of Ukraine (which Moscow considers a special operation to disarm its neighbor), the market fell 2%.

However, there are still reports of terrorist attacks. Although Volodymyr Zelenskiy, the Ukrainian President, said that there had been promising signs during peace negotiations held in Istanbul Tuesday afternoon, he is looking for concrete results.

Zelenskiy stated in a late-night speech that while we can affirm the positive signals from the talks, they don’t drown out the Russian shell explosions.

Commonwealth Bank analyst Tobin Gorey said in a note that “The (price) recovery suggests the oil market, at least, has a strong degree of scepticism about any ‘progress’.”

Major oil producers won’t increase their output beyond the agreed 400,000 barrels per hour, according to sources close to the organization.

Saudi Arabia and United Arab Emirates are key members of OPEC+. They said that the group will not take any action against Russia in response to its invasion of Ukraine.