On Monday, crude oil prices fell more than 5% as the geopolitical premium was wiped out by easing tensions in the US-Iran relationship.
On Monday, oil prices dropped the most in a single session for over six months.
The fall in oil prices was triggered when US President Donald Trump said that Iran had been “seriously” talking with Washington. This was a sign of deescalation between the OPEC country and Washington.
The steepest fall in the stock market is due to a geopolitical decline
Brent crude futures dropped by $3.31 or 4.8% to $65.99 per barrel.
US West Texas Intermediate crude saw the same decline. It fell $3.37 or 5.2% to $61.85 a barrel.
Following remarks by Trump made over the weekend that eased fears about a possible military action against Iran, both contracts have plummeted in value from their multi-month highs.
Analysts cited a stronger US dollar as one of the causes for this slump. It was also fuelled by an increased selloff in commodities and in particular, significant losses in silver and gold.
In a recent note, Warren Patterson, ING Group’s head of commodities, stated that “a broader correction has occurred across the financial markets, adding to the downward trend.”
Ali Larijani – Iran’s highest ranking security official – said that talks are in preparation just hours after Trump told reporters that Iran is “seriously” talking about negotiations on Saturday.
IG analyst Tony Sycamore noted signs of deescalation, citing Trump’s remarks and reports that Iranian Revolutionary Guards naval forces cancelled plans for live-fire drills in the Strait of Hormuz.
OPEC+ continues to pause supply amid easing tensions
Organization of the Petroleum Exporting Countries (OPEC) and its allies confirmed their policy of pausing the increase in supply will continue through the month of March. This extends the initial three-month agreement made in November.
Eight major members including Saudi Arabia, Russia and other countries reaffirmed this decision over the weekend despite recent price increases.
The group confirmed the extension, but did not provide any indications as to its future policy, beyond the first three months, in advance of the upcoming 1 March meeting.
Barbara Lambrecht is a commodity analyst with Commerzbank AG. She said: “Overall, oil markets remain well-supplied, but the oversupply may not be as large as originally assumed due to supply disruptions, and slightly higher demand.”
According to Lambrecht, the inventory data this week will provide clarity about the extent of disruptions in the US.
Prices are expected to drop again as soon as geopolitical risk is no longer the dominant headline.
US oil production is slack and speculative positions are bullish
While drilling is still slow in the US, weak prices are preventing investment.
Baker Hughes reports that the US oil-rig count remained at 411 in last week.
The total number of rigs (oil and natural gas) has increased slightly to 546 but is still 36 below what was recorded one year ago.
Patterson of ING said that despite the expectation for a large surplus in 2018, US crude production growth would remain limited until 2026.
Recent geopolitical tensions have encouraged new buying in anticipation of today’s falls.
Money managers increased their net long position in ICE Brent last week by 29,947 tons, the biggest bullish commitment seen since September 2025.
The NYMEX WTI net long position increased for the eighth week in a row, by 9,557 tons to its highest level since August 20,25.
The extreme cold caused refinery disruptions along the US Gulf Coast.
All eyes will also be focused on the geopolitical story this week, as the easing of tensions could lead to an even more dramatic price decline with abundant supply.
The post Oil drops over 5% after US-Iran deescalation removes geopolitical advantage may change as new developments unfold.
