Oil prices dropped about 1% on Tuesday, extending losses into a second session, as traders assessed the prospect of easing tensions between the United States and Iran, while a firmer U.S. dollar added further pressure.
Brent crude futures were down 68 cents, or 1%, at $65.62 a barrel by 0903 GMT. U.S. West Texas Intermediate crude also fell 60 cents, or 1%, to $61.54 a barrel.
The market had already sold off sharply on Monday, with prices sinking more than 4% after U.S. President Donald Trump said Iran was “seriously talking” with Washington, a comment interpreted as a sign of potential de-escalation with the OPEC member.
According to officials cited by Reuters, Iran and the United States are expected to restart nuclear negotiations on Friday in Turkey. Trump also warned that, with large U.S. warships heading toward Iran, “bad things could happen” if an agreement is not reached.
Iranian President Masoud Pezeshkian added on Tuesday that talks with the U.S. should move forward to protect Iran’s national interests as long as “threats and unreasonable expectations” are avoided, writing in a post on X.
“The volatile price actions of oil seen in the last four weeks have been driven by the geopolitical risk premium factor that is linked to the current U.S. administration’s expansionary foreign policy, especially the ’on-off’ threats towards Iran,” said Kelvin Wong, senior market analyst at OANDA.
Further weighing on crude, the U.S. dollar index hovered close to its highest level in more than a week. A stronger dollar typically dampens demand for dollar-priced oil among non-U.S. buyers.
Supply considerations also remained in focus. Russia’s Deputy Prime Minister Alexander Novak said on Tuesday that the country has ample fuel supplies and is even running a surplus, noting that conditions in Russia’s oil products market stabilised last autumn.
Separately, Trump on Monday announced a trade agreement with India that cuts U.S. tariffs on Indian goods to 18% from 50%, in exchange for India halting purchases of Russian oil and reducing trade barriers.
“Overnight, the U.S. and India agreed on a trade deal … if we do see this happen, it will only lead to a further increase in the amount of Russian oil floating at sea,” ING analysts wrote in a note.
Trump revealed the agreement on social media after speaking with Indian Prime Minister Narendra Modi, saying India had agreed to buy oil from the United States and potentially from Venezuela as well.
Looking ahead, market participants remain cautious. “Looking ahead into February, prices are likely to remain choppy and range-bound … (they) are expected to stay highly reactive to headlines and macro cues rather than a decisive trend, with risk skewed to the downside,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.