Oil prices dropped on Monday as investors turned down concerns about a supply shock following U.S. President Donald Trump’s statements on Iran indicated a possible easing in tensions between Tehran and Washington.
Trump has repeatedly threatened Iran with a potential intervention in case it did not strike a nuclear deal or persisted with a crackdown on domestic protests, which Tehran alleges are driven by the West. He informed reporters on Saturday that Iran was “seriously talking” with the U.S.
His comments came after Iran’s top security official, Ali Larijani, stated on X (formerly known as Twitter) that preparations for negotiations were underway.
Recently, oil prices were elevated to a six-month high in fear that the United States might make a military attack against Iran. Washington deployed a massive Armada towards Iran last week, an action that has caused fear of a confrontation with the Middle Eastern country.
LSEG data added that global benchmark Brent plummeted as much as 6.4 percent to $66.15 a barrel on Monday, and was last 4.41 percent lower. The U.S. West Texas Intermediate futures fell by 4.75 percent to $62.11 per barrel.
Andy Lipow, president of Lipow Oil Associates, stated that the renewed fall in prices after reports that Washington and Tehran have been communicating through intermediaries, increasing hopes that tensions might soften rather than spiral.
He reported CNBC, “The talks are happening at the same time Iran is threatening a regional war should they be attacked, which could lead to substantially higher oil prices, an outcome that the Trump Administration would like to avoid.”
Marko Papic, BCA Research macro and geopolitical strategist, added that the U.S. administration’s sensitivity to oil prices might serve as a brake on further escalation.
He stated, “I do think that President Trump is concerned that if oil prices go up to, you know, $70-$80, he’s going to get even further into a hole ahead of the midterms.”
Therefore, the U.S. has midterm elections later this year, and fuel prices have traditionally been a sensitive political issue for voters. The timing of diplomatic feelers is also when there is a supplementary supply quietly getting into the market.
Venezuelan crude, which is supplied by offshore and onshore inventories, and not new production, is filling its barrels, yet the world remains in surplus of oil production despite the demand.
Both analysts have indicated that such flows are contributing to close prices even with OPEC+ keeping output tightly controlled.
Lipow said, “While additional quantities of Venezuelan oil are coming to market as offshore and onshore inventories are liquidated and sold, the oil market will also continue to be supported by OPEC+’s decision to hold steady its current production levels.”
Thus, the oil cartel on Sunday voted to maintain production unchanged in March and prolonged a three-month freeze on supplies.
