Oil prices retreated sharply on Tuesday, , with Brent crude futures plunging nearly 5% to trade below $84 a barrel after U.S. President Donald Trump said talks with Iran were "good", raising hopes of a diplomatic breakthrough in the Middle East.
The decline came after both Brent and U.S. West Texas Intermediate (WTI) crude posted their steepest one-day fall in months, as investors unwound the geopolitical risk premium built into prices during the recent escalation in hostilities between Washington and Tehran.
Brent crude futures fell to their lowest level since July 20, while WTI also hit a one-week low. The sell-off followed the U.S. decision over the weekend to pause air strikes against Iran, raising hopes that diplomacy could avert a broader conflict.
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Speaking to reporters aboard Air Force One, Trump said the United States was holding "good talks" with Iran and that there was a "good chance" negotiations would make progress. According to Axios, Trump paused military action to allow diplomatic efforts another opportunity, although it remained unclear whether substantive negotiations were underway.
Trump, however, cautioned that U.S. strikes could resume if talks failed. Iran also warned that it would retaliate in the event of renewed attacks, underscoring that geopolitical risks remain elevated despite the market's optimistic reaction.
Crude prices have swung sharply this month, rallying as the conflict intensified and spread to key maritime routes before reversing course as hopes of de-escalation gained traction.
Analysts said the latest decline reflects traders pricing out part of the geopolitical premium, though supply concerns have not disappeared entirely.
"I don't think the Middle East is 'solved'," Scott Shelton, energy specialist at TP ICAP Group Plc., said. "There needs to be real evidence of oil moving through the Strait of Hormuz, which I think has yet to happen."
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Shipping disruptions also remain a key concern. Tanker traffic through the Strait of Hormuz has yet to fully normalise, while Afrah al-Zouba, the foreign minister-designate of Yemen's internationally recognised Saudi-backed government, said Houthi fighters were seeking to replicate Iran's influence over shipping by threatening vessels passing through the Bab el-Mandeb chokepoint.
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