Oil Prices Fall by 5% after Trump's De-escalation Signal on Iran

Oil markets sharply repriced geopolitical risk on Feb. 2 after U.S. President Donald Trump said Iran was “seriously talking” with Washington, signaling de-escalation with a key OPEC member and undercutting fears of supply disruption. By 09:20 GMT in London, Brent crude futures had fallen $3.63, or 5.2%, to $65.69 per barrel, while U.S. West Texas Intermediate (WTI) slid $3.60, or 5.5%, to $61.61. The move unwound part of January’s rally, when Brent gained 16% and WTI rose 13%, their biggest monthly increases since 2022.

The immediate catalyst was Trump’s weekend comments, reinforced on Feb. 1 when he said a negotiated deal with Iran could deliver “no nuclear weapons,” adding, “They are talking to us - seriously talking to us.”

Tehran’s top security official, Ali Larijani, separately said arrangements for negotiations were under way. Together, the statements reduced the market’s war-risk premium after weeks in which the possibility of U.S. military action had supported prices.

Supply Glut Meets Strong Dollar

With escalation risk receding, traders refocused on fundamentals. UBS analyst Giovanni Staunovo said the lack of further Middle East escalation, combined with falling supply disruptions in the U.S. and Kazakhstan, weighed on prices.

A broader commodities selloff amplified the move, with sharp losses in gold and silver partly attributed to a stronger U.S. dollar. Phillip Nova analyst Priyanka Sachdeva said the dollar’s renewed strength made dollar-denominated oil more expensive for non-U.S. buyers, adding pressure to crude.

Concerns that global supply could exceed demand also resurfaced. OPEC+ on Sunday agreed to keep output unchanged for March. The group had already frozen further planned increases from January through March 2026, citing seasonally weaker consumption.

Capital Economics summed up the tension in a Jan. 30 note: “Geopolitical risks mask a fundamentally bearish oil market.”

The firm also pointed to last year’s 12-day war between Israel and Iran and a well-supplied market as forces likely to weigh on Brent by end-2026.

“Seriously Talking” Reframes January Rally

January’s gains were built on persistent threats from Trump, who warned of intervention if Iran did not agree to a nuclear deal or continued killing protesters. Those risks helped push prices higher even as inventories and spare capacity suggested a looser market.

Monday’s 5% drop underscored how quickly sentiment can flip when diplomacy displaces confrontation, particularly with Iran’s status as an OPEC producer.

The pullback also reflected easing supply disruptions outside the Middle East and the absence of new production curbs. With Brent now near $65 and WTI around $61, traders are reassessing whether January’s rally overshot the underlying balance between supply and demand, especially as OPEC+ holds output steady and the dollar firms.