(Reuters) -Oil recovered some of its more than 2% fall in Asian trade on Thursday after Russian-backed rebels in eastern Ukraine accused Kyiv government forces on Thursday of shelling their territory with mortars.
U.S. West Texas Intermediate (WTI) crude was trading down 0.7% at $92.98 a barrel at 0422 GMT, after earlier falling more than 2%.
Brent crude was trading down 0.6% at $94.2 at 0420 GMT, after also dropping earlier by over 2%.
Russian-backed rebels in eastern Ukraine said Kyiv government forces on Thursday used mortars to attack their territory, in violation of agreements aimed at ending the conflict, Russian state news agency RIA said.
An escalation in the years-long conflict with Donbass separatists could fuel tension between Russia and the West. Russia has massed more than 100,000 troops close to Ukraine's border and the West has threatened Moscow with new sanctions if it attacks.
Oil tumbled earlier after France and Iran said parties are closer to an agreement to salvage Iran's 2015 nuclear deal with world powers, offsetting tensions over Ukraine.
"Positive news from the U.S.-Iran nuclear negotiations is providing much-needed relief to global oil prices, as the possibility of new crude supplies reduces the supply-demand deficit," said Claudio Galimberti, senior vice president of consultancy Rystad Energy.
France said on Wednesday a decision on salvaging Iran's 2015 nuclear deal with world powers was just days away and that it was now up to Tehran to make the political choice, while Tehran called on Western powers to be "realistic."
With the new deal beckoning, South Korea, previously one of Tehran's leading oil customers in Asia, said on Wednesday it had held working-level talks on resuming imports of Iranian crude oil and unfreezing Iranian funds.
In a research note earlier on Thursday, Eurasia Group said in the event of a deal Iran would be able to enter the market ramping up supplies faster than following the deal in 2015.
"This time around, the phasing in of the deal could take 1-2 months, but Iran will likely begin ramping up oil exports immediately, both legally and illegally," Eurasia noted, adding that the supplies could come from floating storage Iran held in Asia as well as oil stored in bonded tanks in China.
Oil markets have been dominated in recent weeks by Russia's threatening posture toward Ukraine, with concerns that supply disruptions from the major producer in a tight global market could push oil prices to $100 a barrel.
Russia's announcement of a partial pullback of troops from near Ukraine earlier this week was countered by Western governments' warning that Russia was building up military presence near the Ukraine border, keeping the tension simmering.
"In the past few weeks, markets have priced in Russia-Ukraine tension that would lead to more production and supply disruption in an already tight supply situation in the oil markets," said Tina Teng, analyst at CMC Markets, adding prices could see a further pullback if tensions de-escalate.
