Oil drops 1%, settles at 5-month lows as Trump-Putin summit looms

By Nicole Jao

NEW YORK (Reuters) -Oil prices fell more than 1% on Thursday after U.S. President Donald Trump said he and Russian President Vladimir Putin agreed to meet in Hungary soon to discuss ending the war in Ukraine, casting uncertainty over global energy supplies.

Brent crude futures settled 85 cents, or 1.37%, lower at $61.06 a barrel. U.S. West Texas Intermediate futures closed 81 cents, or 1.39%, lower at $57.46. Those were the lowest settlements for both benchmarks since May 5.

Trump said he and Putin agreed on Thursday to meet in Budapest soon to discuss ending the war in Ukraine, one day before the U.S. president was due to speak with Ukrainian leader Volodymyr Zelenskiy. The date of the summit was not provided.

"The geopolitical tension between Russia, the United States and Ukraine is beginning to redevelop," said Tim Snyder, chief economist at Matador Economics, pushing some market participants to unwind their positions. 

Also weighing on prices, the Energy Information Administration said U.S. crude inventories increased by 3.5 million barrels to 423.8 million barrels last week, compared with analysts' expectations in a Reuters poll for a 288,000-barrel rise. The bigger-than-expected build in crude inventory was largely due to lower refining utilization as refineries go into fall turnarounds. [EIA/S]

"A modestly bearish report, with a large crude build being offset by a large distillate draw, but with implied oil demand considerably weaker than last week," said UBS analyst Giovanni Staunovo.

The data also showed a rise in U.S. production to 13.636 million barrels per day, the highest on record.

Meanwhile, traders were also looking for a potential halt to India's Russian oil imports, which could reshape flows and boost demand for supplies from elsewhere.

President Trump said Prime Minister Narendra Modi had pledged on Wednesday that India would stop buying from Russia, which is India's top oil supplier, accounting for about one-third of its oil imports.

"This is a positive development for the crude oil price as it would remove a big buyer of Russian oil," said Tony Sycamore, a market analyst at IG.

Both contracts on Wednesday touched their lowest since early May on U.S.-China trade tensions and concerns about a looming supply glut. 

Some Indian refiners are preparing to cut Russian oil imports, with expectations of a gradual reduction, three sources familiar with the matter told Reuters.

However, India said on Thursday that its two main goals were to ensure stable energy prices and secure supply, making no reference to Trump's comments.

Russia said it was confident that its energy partnership with India would continue.

The British government announced new sanctions on Wednesday, directly targeting Russia's Rosneft and Lukoil - two of the world's biggest energy companies.

(Reporting by Nicole Jao in New York, Robert Harvey in London, Katya Golubkova in Tokyo and Sam Li in Beijing. Editing by Alexander Smith, Rod Nickel and David Gregorio)