Oil jumps 2% as investors weigh Ukraine talks against supply outlook

By Seher Dareen

Dec 29 (Reuters) - Oil prices rose by more than $1 on Monday as investors weighed talks between the U.S. and Ukrainian presidents on a possible deal to end the war in Ukraine against potential oil supply disruption in the Middle East.

Brent crude futures rose $1.22, or 2%, to $61.86 a barrel by 0948 GMT while U.S. West Texas Intermediate crude was up $1.22, or about 2.2%, at $57.96.

Both benchmarks fell by more than 2% on Friday.

"Energy markets moved higher as geopolitical developments lent support to crude prices, with Brent edging up on renewed Middle East tensions and shifting Ukraine peace talks," said IG analyst Axel Rudolph, adding that thin liquidity could amplify volatility into the start of next year.

Ukrainian President Volodymyr Zelenskiy said on Monday that significant progress had been made in talks with U.S. counterpart Donald Trump and agreed that U.S. and Ukrainian teams would meet next week to finalise issues aimed at ending Russia’s war in Ukraine.

Zelenskiy added that a meeting with Russia would be possible only after Trump and European leaders agree on a Ukraine-proposed framework for peace.

"The Middle East has also been unsettled recently, with Saudi air strikes in Yemen ... this may be what's driving market concerns about potential supply disruptions," said Yang An, a China-based analyst at Haitong Futures.

Saudi Arabia, the world's biggest oil exporter, is expected to lower the February price for its flagship Arab Light crude for Asian buyers for a third month, mirroring declines in the spot market owing to abundant supplies, six Asia-based refining sources said in a Reuters survey. 

Investors are also awaiting U.S. stockpiles data for the week to December 19, with an extended Reuters poll showing that U.S. crude oil inventories were expected to have fallen last week, while distillate and gasoline inventories are likely to have risen. [EIA/S]

The report was delayed from its usual Wednesday release because of the Christmas holiday.

WTI crude is expected to trade within a $55-$60 range, with U.S. enforcement actions against Venezuelan oil shipments also in the spotlight, along with potential fallout from a U.S. military strike against ISIS targets in Nigeria, IG analyst Tony Sycamore said in a note.

(Reporting by Seher Dareen in London and Sam Li and Ryan Woo in BeijingEditing by David Goodman)