"Geopolitics masks 'bearish' trend": oil suffered its worst drop in six months

Oil prices on Monday, February 2, were down more than 5% at the moment, marking their biggest one-day drop in more than six months, Seeking Alpha pointed out. This is how investors reacted to US President Donald Trump's reports that Iran is in "serious talks" with Washington over the nuclear deal. This could be taken as a signal of a potential de-escalation of the conflict between the US and OPEC member Iran.

On February 2, Mark crude futures were down 5.3% at the moment to $65.66 per barrel (trading at $65.94 at the time of publication), while WTI crude was down 5.5% to $61.62 per barrel (currently at $61.89). Both contracts have fallen sharply from multi-month highs - back on January 29, amid Trump's military threats to Iran, Brent futures cost more than $70 per barrel for the first time since September 2025. WTI reached $65, a four-month high.

Trump's geopolitical threats supported oil prices throughout January, Phillip Nova analyst Priyanka Sachdeva noted in comments to Reuters. "The decline in [oil] prices has also been exacerbated by the strengthening of the U.S. dollar, which typically makes dollar-denominated oil more expensive for buyers outside the U.S. and further pressures prices," she added.

The oil market took Trump's comments, as well as Iran's statements that the Islamic Revolutionary Guard Corps Navy is not planning to conduct live-fire exercises in the Strait of Hormuz, "as an encouraging step" leading to a de-escalation of the conflict, said Tony Sycamore, an analyst at trading platform IG: "all of this, he said, reduces the 'geopolitical premium to the [oil] price built into last week's rally and provokes profit taking'" (quoted by Reuters).

"Geopolitical risks are masking a fundamentally bearish trend in the oil market," Capital Economics said in a Jan. 30 research note, the agency points out. "The historical example of last year's 12-day war [between Israel and Iran], as well as a well-supplied oil market, will continue to weigh on Brent prices by the end of 2026," the experts said.

"The marked change in Trump's rhetoric has eased fears of [oil] supply disruptions," ANZ analysts also pointed out. - This has reduced some premium to oil prices, even as the US military presence in the region continues to grow," the analysts emphasized, adding that "tensions [in US-Iran relations] still remain high" (quoted by Seeking Alpha).

In addition, ANZ noted, "the market is mindful of the weekend OPEC meeting". In November last year, the group also froze the planned increase in production from January to March 2026 due to the seasonal decline in consumption.

On January 29, oil prices reached multi-month highs amid Trump's demands for Iran to conclude a nuclear deal. Otherwise, the US president warned, Tehran should be ready for a military solution to the issue.

This article was AI-translated and verified by a human editor