Global oil prices dropped sharply on Monday, falling by more than four per cent, after signs of easing tensions between the United States and Iran reduced geopolitical risk premiums that had supported prices in recent weeks.
Brent crude declined by $3.34 (4.8%) to $65.98 per barrel, while U.S. West Texas Intermediate (WTI) fell $3.37 (5.2%) to $61.84 per barrel as of mid-morning trading.
The sell-off followed comments by U.S. President Donald Trump, who said Iran was “seriously talking” with Washington, signalling a possible de-escalation with the OPEC member. Iranian officials also confirmed that preparations for negotiations were underway.
Analysts said the easing of Middle East tensions removed a key driver of January’s oil rally. Brent and WTI had posted their strongest monthly gains since 2022, rising 16% and 13% respectively, largely on fears of a potential military confrontation involving Iran.
“The absence of further escalation in the Middle East, alongside reduced supply disruptions in the U.S. and Kazakhstan, is weighing on prices,” said Giovanni Staunovo, an analyst at UBS.
Oil markets were further pressured by a stronger U.S. dollar, which makes dollar-priced commodities more expensive for non-U.S. buyers. The dollar’s strength followed renewed optimism around U.S. monetary policy leadership.
“The decline reflects the fading geopolitical risk premium as both sides show willingness to engage, combined with dollar strength,” said Tamas Varga of PVM.
The downturn was also part of a broader sell-off across commodity markets, with sharp losses recorded in gold and silver.
Meanwhile, concerns about a potential oversupply resurfaced after OPEC+ agreed at a meeting on Sunday to maintain output levels for March. The group had already postponed planned production increases through early 2026 due to weaker seasonal demand.
“Geopolitical risks are masking a fundamentally bearish oil market,” Capital Economics said in a recent note, adding that ample supply could continue to weigh on prices into 2026.