Oil Prices Plunge as Supply Shock Fears Ease on Signs of Thawing U.S.–Iran Tensions
Oil prices fell sharply in trading on February 2 as investors became less concerned about the risk of a supply shock, following remarks by U.S. President Donald Trump suggesting that tensions between Tehran and Washington may be easing.
Trump has repeatedly warned Iran of possible intervention if it fails to reach a nuclear agreement or continues to crack down on domestic protests. On January 31, Trump told reporters that Iran was “seriously talking” with the United States.
These remarks came after Iran’s top security official, Ali Larijani, wrote on social media platform X that preparations for negotiations were underway.
Earlier, oil prices had climbed to a six-month high amid concerns that the United States could launch a military strike against Iran. Last week, Washington deployed a “large fleet” closer to Iran, heightening fears of a direct confrontation.
Brent crude futures at one point dropped as much as 6.4% to USD 66.15 per barrel on February 2, before paring losses to trade down 4.41%. U.S. West Texas Intermediate (WTI) crude futures fell 4.75% to USD 62.11 per barrel.
Andy Lipow, President of Lipow Oil Associates, said the latest sell-off followed reports indicating that Washington and Tehran are communicating through intermediaries, raising hopes that tensions may cool rather than escalate.
“These talks are taking place against the backdrop of Iran simultaneously threatening a regional war if attacked—a scenario that could send oil prices soaring, something the Trump administration wants to avoid,” Lipow said.
Marko Papic, Chief Macro and Geopolitical Strategist at BCA Research, added that the U.S. administration’s sensitivity to oil price movements could act as a constraint on further escalation. “I believe President Trump is concerned that if oil prices rise into the USD 70–80 per barrel range, it would put him at an even greater disadvantage ahead of the midterm elections,” he said.
The United States is set to hold midterm elections later this year, and fuel prices have long been a politically sensitive issue for voters.
Diplomatic developments are also unfolding as additional supply is quietly returning to the market. Venezuelan crude—largely drawn from offshore and onshore inventories rather than new production—is increasing available supply, while global oil output continues to exceed demand.
Both analysts said these supply flows are helping to cap oil prices, even as OPEC+ continues to manage production cautiously.
“While additional Venezuelan oil is coming to market through the release and sale of offshore and onshore inventories, the oil market will still be supported by OPEC+’s decision to maintain current production levels,” Lipow said.
On February 1, the OPEC+ alliance decided to keep output unchanged for March, extending its supply freeze for another three months.
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