Oil prices declined for a second consecutive session on Tuesday, as traders reassessed geopolitical risk premiums in light of potential diplomatic breakthroughs between Washington and Tehran, while a strengthening U.S. dollar applied additional downward pressure on commodities markets.
By early Asian trading hours at 0623 GMT, Brent crude futures had slipped 34 cents, or 0.5%, settling at $65.96 per barrel. U.S. West Texas Intermediate crude tracked similar losses, declining 32 cents, or 0.5%, to $61.81 a barrel.
The modest retreat follows a more dramatic sell-off on Monday, when crude prices tumbled more than 4% after President Donald Trump signaled a potential thaw in relations with Iran. Trump told reporters that the OPEC member nation was “seriously talking” with the United States, raising hopes among market participants that heightened Middle East tensions—which have underpinned a substantial risk premium in oil markets—might be easing.
The diplomatic developments are taking concrete form. Officials from both Washington and Tehran confirmed to Reuters on Monday that nuclear negotiations are scheduled to resume on Friday in Turkey, marking a significant step after weeks of escalating rhetoric and military posturing.
However, the path forward remains uncertain. Even as he dangled the prospect of dialogue, President Trump issued a stark warning, noting that U.S. warships are en route to the region and cautioning that “bad things could happen” if a deal cannot be reached.
Iranian President Masoud Pezeshkian struck a cautiously optimistic tone on Tuesday, posting on X that talks with Washington should be pursued to advance Iran’s national interests, provided they avoid “threats and unreasonable expectations.” The carefully worded statement suggests Tehran is open to engagement while establishing clear red lines for negotiations.
“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,” explained Kelvin Wong, senior market analyst at OANDA, capturing the whipsaw nature of recent trading.
Beyond geopolitical considerations, market fundamentals are exerting their own influence on crude pricing. The U.S. dollar index hovered near its highest level in more than a week on Tuesday, making dollar-denominated commodities like oil more expensive for holders of foreign currencies and consequently dampening international demand.
Analysts at ING identified a specific catalyst for the recent strength of the greenback. “The continued recovery in the U.S. dollar yesterday, following President Trump’s nomination of Kevin Warsh as the next Federal Reserve chair, also exerted downward pressure on oil prices,” the bank noted in a research briefing.
The nomination of Warsh, a former Fed governor known for his hawkish monetary policy views, has reinforced expectations that U.S. interest rates may remain elevated, supporting the dollar’s appeal among global investors.
Adding another layer of complexity to the oil market outlook, President Trump announced Monday that Washington had reached a trade agreement with India that could significantly alter global crude flows. Under the deal, unveiled via social media following a phone call with Prime Minister Narendra Modi, U.S. tariffs on Indian goods would be slashed to 18% from 50%.
In exchange, New Delhi has reportedly agreed to halt purchases of Russian oil and lower trade barriers, while also committing to increase purchases of American crude—and potentially Venezuelan oil.
The implications for oil markets could be substantial. “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 warned, suggesting that displaced Russian barrels could add to global supply pressures and weigh on prices.
The agreement represents a major shift for India, which has emerged as one of the largest buyers of discounted Russian crude following Western sanctions imposed after Moscow invaded Ukraine.
Despite Tuesday’s modest declines, market observers are bracing for continued turbulence in oil markets as traders navigate an increasingly complex landscape of geopolitical developments, trade negotiations, and macroeconomic crosscurrents.
“Looking ahead into February, prices are likely to remain choppy and range-bound,” said Priyanka Sachdeva, senior market analyst at Phillip Nova. “They are expected to stay highly reactive to headlines and macro cues rather than a decisive trend, with risk skewed to the downside.”
The assessment reflects the precarious balance oil markets currently face: while diplomatic progress could erode the geopolitical risk premium that has supported prices in recent weeks, ongoing uncertainty about Middle East stability, Russian supply redirections, and global demand trends suggests that volatility—rather than any clear directional move—is likely to remain the dominant characteristic of crude trading in the weeks ahead.
For now, the market appears to be cautiously embracing the possibility of de-escalation, even as traders keep one eye firmly fixed on the potential for renewed tensions should diplomatic efforts falter.
WHAT YOU SHOULD KNOW
Oil prices dropped for the second straight day, falling roughly 0.5% on Tuesday, primarily driven by signals that U.S.-Iran tensions may be easing ahead of nuclear talks scheduled for Friday in Turkey.
While President Trump’s comments about Iran “seriously talking” with Washington have reduced the geopolitical risk premium that had been propping up prices, a strengthening U.S. dollar is adding further downward pressure.
However, analysts warn that volatility will likely persist throughout February, as markets remain highly reactive to diplomatic headlines, trade developments—including a new U.S.-India deal that could disrupt Russian oil flows—and macroeconomic factors.
