Oil prices extended losses on Tuesday, marking a second consecutive day of declines, as investors assessed signs of easing tensions between the US and Iran alongside a strengthening US dollar that curbed demand for crude.
Geopolitical De-escalation and Market Sentiment
Brent crude futures dropped 39 cents, or 0.5%, to $65.91 per barrel by 0330 GMT. West Texas Intermediate crude fell 31 cents, or 0.5%, to $61.83 per barrel. This follows a more than 4% plunge on Monday after US President Donald Trump indicated Iran was engaging in serious talks with Washington.
Nuclear negotiations between Iran and the US are set to resume in Turkey on Friday, with Trump cautioning about potential risks if no agreement is reached, including the presence of US warships near Iran. Analysts at Phillip Nova noted that recent price swings appear driven by sentiment rather than fundamental changes.
Senior market analyst Priyanka Sachdeva highlighted that after last week’s rally, markets relinquished gains amid volatile risk assets. No new geopolitical escalations and mixed macro data contributed to oil’s inability to sustain upward momentum.
Economic Factors and Trade Developments
The US dollar index lingered near a one-week high, pressuring oil prices downward. A firmer dollar reduces affordability of dollar-priced crude for international buyers. ING analysts pointed to the dollar’s recovery, spurred by Trump’s nomination of Kevin Warsh as the next Federal Reserve chair.
Additionally, a new US-India trade deal was unveiled, reducing US tariffs on Indian goods from 50% to 18%. In return, India commits to ceasing Russian oil imports and easing trade barriers. Trump announced via social media that India will purchase oil from the US and potentially Venezuela.
ING warned this could increase Russian oil supplies adrift at sea. Sachdeva forecasts choppy, range-bound prices in February, highly responsive to headlines and macro signals, with downside risks. Some experts anticipate continued volatility this month.
The deal stems from a call between Trump and Indian Prime Minister Narendra Modi. Overall, these factors underscore the interplay of diplomacy, currency strength, and trade in influencing global oil markets. Despite no major supply disruptions, sentiment remains cautious. Traders eye upcoming talks for further direction.
This downturn reverses partial recoveries from earlier tensions. Market participants monitor Federal Reserve implications closely.