Oil prices dropped by more than $1 a barrel on Thursday after the United States and Iran confirmed they would hold talks in Oman on Friday, easing fears that a military confrontation could disrupt oil supplies from the Middle East.
Brent crude futures fell $1.31, or 1.9%, to $68.15 a barrel by 07:14 GMT, while U.S. West Texas Intermediate crude slid $1.24, or 1.9%, to $63.90 a barrel.
The decline followed a sharp rally of about 3% on Wednesday, when reports suggested the planned U.S.–Iran talks could collapse. Later in the day, officials from both sides said the meeting would go ahead, although the scope and agenda of the discussions remain unclear.
“The oil price has erased part of the geopolitical risk premium on the news of U.S.–Iran talks in Oman,” said Mukesh Sahdev, CEO of energy consultancy XAnalysts.
Officials from both countries indicated that significant differences remain. Iran has said it is willing to discuss aspects of its nuclear program, including uranium enrichment, while the United States wants broader talks covering ballistic missiles, Iran’s support for proxy groups in the region, and human rights issues.
Sahdev cautioned that fresh disagreements could quickly emerge. “It is likely that these talks will surface new differences and the risk premium will rise again soon,” he said.
Despite the diplomatic engagement, concerns persist that Donald Trump could still follow through on threats of military action against Iran, the fourth-largest producer in OPEC. Any escalation could raise the risk of a broader conflict across the oil-rich region.
Beyond potential disruption to Iranian output, markets are also wary that exports from other Gulf producers could be affected. Roughly one-fifth of global oil consumption flows through the Strait of Hormuz, a critical chokepoint between Oman and Iran. Major exporters such as Saudi Arabia, the United Arab Emirates, Kuwait, Iraq, and Iran rely heavily on the strait to ship crude.
Analysts added that a firmer U.S. dollar and heightened volatility in precious metals also weighed on commodities and overall risk sentiment on Thursday.
Meanwhile, data released Wednesday by the Energy Information Administration showed U.S. oil inventories fell last week, as severe winter storms disrupted production across large parts of the country, offering some underlying support to prices.
