Oil steadies, Ukraine peace talks and US rate decision in spotlight

Dec 9 (Reuters) - Oil prices steadied on Tuesday after slipping 2% in the previous session, as market participants kept a close eye on peace talks to end Russia's war in Ukraine and a looming decision on U.S. interest rates.

Brent crude futures were down 2 cents, or 0.03%, to $62.47 a barrel at 0101 GMT. U.S. West Texas Intermediate crude was at $58.84, down 4 cents, or 0.07%.

Both contracts fell by more than $1 on Monday after Iraq restored production at Lukoil's West Qurna 2 oilfield, one of the world's largest.

Ukraine will share a revised peace plan with the U.S. after talks in London between President Volodymyr Zelenskiy and the leaders of France, Germany and Britain.

"Oil is keeping to a tight trading range until we get a better idea of which way the peace talks will go," KCM Trade chief market analyst Tim Waterer said.

"If the talks break down, we expect oil to move higher, or if progress is made, and there is a likelihood of Russian supply to the global energy market resuming, prices would be expected to drop," he added.

According to sources familiar with the matter, the 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 in a bid to reduce Russia's oil revenue.

Also on the radar is the Federal Reserve's policy decision, due Wednesday, with markets pricing in an 87% probability of a quarter-point rate reduction.

Looking ahead, analysts at BMI expect oversupply in the energy market, which they say will keep prices under pressure in 2026.

"Although much depends on the OPEC+ response to lower prices in the first quarter of 2026, we should see crude prices recover through the remainder of 2026 on the back of lower production from slowing U.S. shale activity and steady growth in consumption pulling markets closer into balance," BMI added. (Reporting by Ashitha Shivaprasad in Bengaluru and Thomas Derpinghaus)