By Alex Lawler

LONDON (Reuters) -Oil dropped more than 3% from a seven-year high on Tuesday after Russia said some of its military units were returning to their bases after exercises near Ukraine, a move that appeared to de-escalate tension between Moscow and the West.

It was not clear how many units were being withdrawn, and by what distance, after a build-up of an estimated 130,000 Russian troops. An earlier Interfax report on the troop movements had prompted oil to extend losses.

was down $2.87, or 3%, at $93.61 by 1222 GMT. U.S. West Texas Intermediate (WTI) crude dropped $3.49, or 3.7%, to $91.97.

“There are no prizes for guessing the driving force behind this bout of volatility,” said Stephen Brennock of oil broker PVM. “The Russia-Ukraine crisis has put the energy market on high alert for possible disruptions of Russian energy supplies.”

Both oil benchmarks hit their highest since September 2014 on Monday, with Brent touching $96.78 and WTI reaching $95.82. The price of Brent rose 50% in 2021 as a global recovery in demand from the COVID-19 pandemic strained supply.

The latest Russia-Ukraine development drew a cautious response from Ukraine and Britain, after days of U.S. and British warnings that Moscow might invade its neighbour at any time.

British Prime Minister Boris Johnson and U.S. President Joe Biden had agreed in a call on Monday there was a crucial window for diplomacy.

Investors are also watching talks between the United States and Iran on reviving Tehran’s nuclear deal with world powers, which could potentially allow for higher Iranian oil exports.

Russian Foreign Minister Sergei Lavrov spoke to his Iranian counterpart Hossein Amirabdollahian on Monday, and they noted a “tangible move forward” in reviving the Iran nuclear deal, Russia’s foreign ministry said.

In other developments, the latest weekly reports on U.S. inventories are expected to show a drop in crude stocks, underlining a tight supply and demand balance.

The first of this week’s two reports, from the American Petroleum Institute, is due at 2130 GMT.