U.S. oil surged to the highest level since 2008 Thursday before reversing course as the market weighs supply disruptions from Russia against a possible Iran nuclear deal.

West Texas Intermediate crude futures, the U.S. oil benchmark, traded as high as $116.57 per barrel, a price last seen on Sept. 22, 2008. International benchmark Brent crude hit $119.84, the highest level since May 2012.

Prices later turned negative, and traded lower throughout the afternoon. WTI ended the day 2.65% lower at $107.67 per barrel, while Brent declined 2.19% to $110.46 per barrel.

Russia's invasion of Ukraine has been driving the narrative for oil, sending prices surging. A possible deal with Iran has been one factor cited that could bring some immediate relief for a very tight market.

"Unless there is a palpable thawing in tension in the form of concessions from either side and sanctions are lifted and/or Iran is allowed back to the market pronto so it can start selling its oil from storage until production is ramped up the risk premium is not expected to deflate markedly," brokerage PVM said Thursday in a note to clients.

Despite Thursday's decline both contracts are still solidly in the green for the week. WTI is up around 19%, while Brent has advanced 14%.

The oil market was already tight prior to Russia's invasion of Ukraine, and with countries now shunning oil from key producer Russia, traders are worried that supply shortfalls will follow.

On Monday, Canada said it was banning Russian oil imports, but so far it's the only nation to target Russia's energy complex directly.

Still, there are ripple effects, including that buyers will decide to shun Russian oil to avoid any possible risk of violating sanctions.

"We expect that Russian oil exports will plunge by 1 million bpd from the indirect impact of sanctions and voluntary actions by companies," Rystad Energy said Thursday in a note to clients.