Oil Falls 5% on US-Iran De-Escalation

Summary

Prices fall from multi-month highs as U.S.-Iran tensions ease
Trump says Iran ‘seriously talking’ with Washington
Geopolitical risks mask a bearish oil market, analysts say

(Reuters) – Oil prices fell 5% on Monday after U.S. President Donald Trump said Iran was “seriously talking” with Washington, signalling a de-escalation of tensions with an OPEC member, while a stronger dollar also weighed on prices.

Brent crude futures were down $3.50, or 5%, at $65.86 per barrel at 1303 GMT. U.S. West Texas Intermediate crude fell $3.42, or 5.2%, to $61.79 per barrel.

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Brent and WTI fell after posting their biggest monthly increase since 2022 in January, as risks of a military strike on Iran receded after Trump’s weekend comments. Brent gained 16% in January, while WTI rose by 13%.

The lack of a further escalation of tensions in the Middle East, as well as falling supply disruptions in the U.S. and Kazakhstan, weighed on oil prices, said UBS analyst Giovanni Staunovo.

On Saturday Trump told reporters Iran was “seriously talking”, hours after Tehran’s top security official Ali Larijani said arrangements for negotiations were underway.

Trump had repeatedly threatened Iran with intervention if it did not agree to a nuclear deal or continued killing protesters. The persistent threats have underpinned oil prices throughout January, said Priyanka Sachdeva, an analyst at Phillip Nova.

The weakness in oil this morning is the combination of the disappearance of the geopolitical risk premium as the U.S. and Iran show tentative willingness to negotiate, and the uptick in the dollar due to the appointment of the next Federal Reserve chairman, PVM analyst Tamas Varga said.

The slump was also driven by a broader commodities markets selloff led by deep losses in gold and silver, which analysts partially attributed to a stronger U.S. dollar.

“The recent pullback has also been reinforced by renewed strength in the U.S. dollar, which typically makes dollar-denominated oil more expensive for non-U.S. buyers, further weighing on prices,” Sachdeva said.

Concerns about global oil supply exceeding demand also came back into focus following de-escalation in the Middle East, analysts said.

At a meeting on Sunday, OPEC+ agreed to keep its oil output unchanged for March. In November, the grouping had frozen further planned increases for January through March 2026 because of seasonally weaker consumption.

“Geopolitical risks mask a fundamentally bearish oil market,” Capital Economics said in a note on January 30.

“The historical example of last year’s 12-day war (between Israel and Iran), and a well-supplied oil market, will still bear down on Brent crude prices by end-2026.”

Reporting by Enes Tunagur in London; Additional reporting by Katya Golubkova in Tokyo and Sudarshan Varadhan in Singapore; Editing by Clarence Fernandez, Jan Harvey and Louise Heavens