Oil prices plunged nearly 5% on Monday in what traders described as the sharpest single-session decline in over half a year, as President Donald Trump’s weekend comments suggesting diplomatic progress with Iran deflated the geopolitical risk premium that had buoyed markets through January.
Brent crude futures, the international benchmark, dropped $3.38 to $65.94 per barrel by 0528 GMT, while U.S. West Texas Intermediate crude fell $3.33 to $61.88 per barrel. Both contracts tumbled from multi-month highs reached last week when military confrontation appeared increasingly likely.
The dramatic reversal came after Trump told reporters Saturday that Iran was “seriously talking” with Washington about potential negotiations. The comments, made just hours after Tehran’s top security official, Ali Larijani, confirmed that arrangements for talks were underway, marked a significant shift in tone from the administration’s recent posture.
Throughout January, Trump had issued repeated threats of military intervention against Iran over its nuclear program and violent suppression of domestic protesters. Those warnings had kept oil markets on edge, supporting prices as traders priced in potential supply disruptions from the world’s seventh-largest crude producer and a key OPEC member.
“The persistent threats have underpinned oil prices throughout January,” said Priyanka Sachdeva, senior market analyst at Phillip Nova. The sudden pivot toward dialogue has now reversed that dynamic, she explained, triggering a wave of profit-taking among investors who had bet on continued escalation.
Market analysts pointed to a confluence of factors accelerating Monday’s sell-off beyond just the Iran news. Tony Sycamore, market strategist at IG, noted that reports indicating Iran’s Revolutionary Guards have no plans for live-fire exercises in the strategically vital Strait of Hormuz—through which nearly a fifth of global oil supply passes—provided additional confirmation that tensions were cooling.
The decline was further amplified by broader weakness across commodity markets, with gold and silver posting particularly steep losses. Analysts partially attributed this broader sell-off to renewed strength in the U.S. dollar, which tends to pressure dollar-denominated commodities.
“The recent pullback has also been reinforced by renewed strength in the U.S. dollar, which typically makes dollar-denominated oil more expensive for non-U.S. buyers, further weighing on prices,” Sachdeva explained.
The price collapse exposed underlying vulnerabilities in oil markets that geopolitical tensions had temporarily obscured. At a meeting on Sunday, OPEC+ decided to maintain its current production levels for March, extending a freeze on planned output increases that the cartel had implemented back in November due to seasonally weaker demand.
Capital Economics warned in a research note last week that “geopolitical risks mask a fundamentally bearish oil market,” suggesting the current sell-off may have further to run.
The firm pointed to parallels with last year’s brief 12-day conflict between Israel and Iran, which ultimately had a limited lasting impact on crude prices. Combined with what analysts describe as a well-supplied global market, Capital Economics projects Brent crude will face continued downward pressure through the end of 2026.
“The crude oil market is interpreting this as an encouraging step back from confrontation, easing the geopolitical risk premium built into the price during last week’s rally and prompting a bout of profit-taking,” Sycamore said.
Whether the diplomatic opening proves durable remains to be seen. Previous attempts at U.S.-Iran negotiations have collapsed amid mutual accusations of bad faith. However, for now, traders appear willing to bet that the immediate threat of military action has receded, removing a key pillar of support for oil prices at a time when market fundamentals offer little alternative justification for higher valuations.
The coming weeks will test whether this nascent diplomatic channel can produce concrete results—or whether it represents merely a temporary pause in what has been an increasingly volatile relationship between Washington and Tehran.
WHAT YOU SHOULD KNOW
Oil prices crashed nearly 5% on Monday—the biggest drop in over six months—after President Trump signaled diplomatic progress with Iran, saying they were “seriously talking.” This sudden shift toward negotiation eliminated the war-risk premium that had been propping up prices throughout January.
However, the sharp selloff also exposed a harsh reality: beneath the geopolitical noise, oil markets are fundamentally oversupplied and weak. Even if tensions flare again, analysts warn that abundant global supply will likely keep prices under pressure through 2026. Geopolitics gave oil a temporary boost, but market fundamentals are reasserting control.
