Oil Prices Tumble as Geopolitical Tensions Cool, Broader Commodities Rout Weighs
(Market Watch) -- Oil prices suffered a sharp reversal on Monday, erasing recent geopolitical risk gains as tensions between the United States and Iran showed signs of easing and a broader commodities sell-off intensified pressure on the energy complex.
Brent crude futures briefly plummeted more than 7% to trade near $66 a barrel, while West Texas Intermediate (WTI) hovered close to $62. The sell-off accelerated after President Donald Trump downplayed weekend threats from Iran's Supreme Leader, Ayatollah Ali Khamenei, reiterating that Washington was "in talks" and expressing optimism for a potential deal. This rhetoric marked a significant de-escalation from the brinkmanship that had dominated markets for weeks.
"The violent move lower looks more like a rapid positioning reset than a fundamental shift in the oil narrative," said Haris Khurshid, Chief Investment Officer at Karobaar Capital LP. "Absent a new, immediate supply shock, the market is efficiently stripping out the risk premium it had baked in for a Middle East disruption that, for now, has failed to materialize."
Crude was also caught in the downdraft of a fierce retreat across the commodities spectrum. Gold fell as much as 10% and copper dropped over 5%, continuing a slide that began late last week. These metals, often seen as barometers of global economic sentiment and inflation expectations, had rallied sharply in prior weeks. A strengthening U.S. dollar added further headwinds, making dollar-priced oil more expensive for holders of other currencies.
The recent oil rally was fueled by escalating U.S.-Iran tensions, which raised the specter of supply disruptions from a region that provides about one-third of the world's crude. This concern had temporarily overshadowed persistent worries about a global supply glut and weakening demand growth.
In other developments affecting global energy flows, Ukrainian President Volodymyr Zelenskiy confirmed the next round of trilateral talks involving the U.S., Russia, and Ukraine would be held in early February. The protracted conflict, soon entering its fifth year, continues to underpin sanctions on Russian energy exports. Meanwhile, the OPEC+ alliance ratified its plan to hold production steady through March, maintaining its output freeze despite the recent price volatility.
Market Voices
Eleanor Vance, Portfolio Manager at Stratton Resources Fund: "This is a healthy correction. The market had gotten ahead of itself on fear. Fundamentals haven't changed; global inventories are still high, and demand forecasts for Q1 are soft. This pullback creates a more rational entry point."
Marcus Thorne, Independent Energy Analyst: "Trump's comments are a classic 'buy the rumor, sell the news' trigger. The premium was built on war fears; the premium vanishes when war fears recede. But let's not forget, the underlying structural risks in the Strait of Hormuz haven't gone anywhere."
Rebecca Shaw, Editor at 'The Barrel Report' newsletter: "It's sheer panic and herd mentality. The algorithms are just piling on. To see this magnitude of drop on a few conciliatory tweets shows how fragile and sentiment-driven this market has become. It's disconnected from the physical reality of still-very-real regional risks."
David Chen, Macro Strategist at Aspen Peak Capital: "The correlation with gold and copper is key. This isn't just an oil story; it's a macro story. Markets are reassessing global growth and inflation expectations all at once. Oil is getting caught in that crosscurrent."