Global oil markets took a bruising on Monday as crude prices plunged nearly 5%, wiped lower by signs that long-simmering U.S.–Iran tensions may be cooling and with them the geopolitical risk premium that had propped up prices since January.
Brent crude slid $3.25, or 4.7%, to $66.07 a barrel, while U.S. West Texas Intermediate (WTI) tumbled $3.27, or 5%, to $61.94, as traders swiftly repriced the outlook for global supply.
The sell-off was sparked after U.S. President Donald Trump revealed that Iran was “seriously talking” with Washington, fuelling expectations of de-escalation with the OPEC member and easing fears of supply disruption from the Middle East. The comments followed confirmation from Tehran that preparations for negotiations were already underway.
For weeks, oil markets had been buoyed by Trump’s hardline rhetoric, including repeated threats of intervention if Iran failed to strike a nuclear deal or halt domestic crackdowns. Those threats, analysts say, helped inflate crude prices through January. With diplomacy now back on the table, that support has abruptly faded.
Adding to the pressure was a resurgent U.S. dollar, strengthened by Trump’s nomination of Kevin Warsh as the next Federal Reserve chair. A stronger greenback makes oil more expensive for non-dollar buyers, dampening demand and accelerating the downturn.
Weather also joined the bears. Forecasts for milder conditions across the U.S. undercut heating fuel demand, sending diesel futures, used heavily for heating and power generation, down nearly 7% in a single session.
Just weeks ago, a potent mix of Middle East tensions and a U.S. polar vortex had driven WTI up 14% and Brent up 16% in January. Now, with both risks fading, traders are turning their attention to a less exciting but more dominant theme: a widely expected buildup in global oil inventories in 2026.
OPEC+ has done little to stem the slide. Meeting on Sunday, the producer group agreed to keep output unchanged in March, maintaining a production freeze first announced in November amid seasonally weaker demand.
For now, the message from the market is clear: as diplomacy replaces brinkmanship, oil’s fear-driven rally is rapidly running out of fuel.
