Crude oil declined more than 5% on Monday as easing tensions between the US and Iran erased the geopolitical premium on prices.
Oil prices marked their steepest single-session drop in over six months on Monday.
This fall was triggered by US President Donald Trump’s statement that Iran was engaged in “seriously talking” with Washington, a signal of de-escalation with the OPEC member country.
Geopolitical de-escalation triggers steepest drop
Brent crude futures fell by $3.31, or 4.8%, to $65.99 per barrel.
Similarly, US West Texas Intermediate crude also saw a decline, dropping $3.37, or 5.2%, to $61.85 per barrel.
The two contracts plummeted from multi-month peak values following remarks made by Trump over the weekend, which eased concerns about a potential military action against Iran.
A stronger US dollar was cited by analysts as a partial cause of the slump, which was also fueled by a wider sell-off in commodities, particularly significant losses in gold and silver.
“A broader correction across financial markets has added to the downward momentum,” Warren Patterson, head of commodities strategy at ING Group, said in a note.
Iran’s top security official, Ali Larijani, stated that preparations for talks were in progress, just hours before Trump informed reporters on Saturday that Iran was “seriously talking” about negotiations.
IG market analyst Tony Sycamore noted that signs of de-escalation were present, citing both Trump’s comments and reports that the Iranian Revolutionary Guards’ naval forces had canceled plans for live-fire exercises in the Strait of Hormuz.
OPEC+ maintains supply pause amid easing tensions
The Organization of the Petroleum Exporting Countries and allies have confirmed that its policy of pausing supply increases will remain in effect through March, extending the three-month freeze initially agreed upon in November.
This decision was reaffirmed over the weekend by eight major members, including Saudi Arabia and Russia, despite the recent surge in prices.
While the extension is confirmed, the group provided no indications of its policy direction beyond the first quarter, ahead of its upcoming meeting scheduled for 1 March.
“All in all, the oil market remains well supplied, although the oversupply is not quite as high as initially assumed thanks to supply disruptions and slightly stronger demand,” Barbara Lambrecht, commodity analyst at Commerzbank AG, said.
This week’s inventory data is anticipated to offer clarity on the scale of the disruptions across the US, according to Lambrecht.
As soon as geopolitical risks no longer dominate the headlines as much as they do at present, prices are likely to fall again.
Slack US drilling and bullish speculative positioning
Meanwhile, drilling activity in the US is still slack, with weak prices suppressing investment.
According to Baker Hughes data, the US oil rig count held steady at 411 last week.
While the total rig count (oil and gas) slightly increased to 546, it remains 36 rigs below the level recorded a year ago.
“Expectations for a sizeable surplus this year suggest US crude output growth will remain constrained into 2026,” ING’s Patterson said.
Speculative positioning shows that recent geopolitical tension encouraged fresh buying ahead of today’s declines.
Last week, money managers boosted their net long positions in ICE Brent by 29,947 lots, marking the largest bullish commitment since September 2025.
Net long positions for NYMEX WTI climbed for the eighth consecutive week, increasing by 9,557 lots to reach their highest level since August 2025.
This rise was partially fueled by the extreme cold weather, which caused disruptions to refinery operations along the US Gulf Coast.
Moreover, all eyes in the oil market will be on the geopolitical narrative this week as easing tensions may lead to a more pronounced price drop with plentiful supply.
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