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Global oil markets sold off sharply on Monday, with prices sliding more than 4% as investors reassessed the risk of a Middle East supply disruption following signals of renewed dialogue between Washington and Tehran.

The pullback came after U.S. President Donald Trump told reporters over the weekend that Iran was “seriously talking” with the United States, sparking hopes that escalating tensions between the two countries could ease rather than spiral into conflict.

Those remarks were reinforced by Iran’s top security official Ali Larijani, who said on social media that preparations for negotiations were already underway.

Brent and WTI Retreat After Reaching Multi-Month Highs

After rallying to six-month highs last week on fears of a potential military confrontation, crude prices reversed course.

Global benchmark Brent crude fell as much as 6.4% in early trading to around $66.15 per barrel before stabilizing roughly 4.4% lower. U.S. West Texas Intermediate futures dropped nearly 5% to about $62.11 per barrel.

Just days earlier, both contracts had surged amid concerns that any strike on Iran could disrupt shipments through the Strait of Hormuz, a vital chokepoint that handles close to 20% of the world’s oil flows.

Market participants had been pricing in a significant geopolitical risk premium after Washington deployed what Trump described as a “massive armada” toward the region, raising alarm over a possible confrontation with the Middle Eastern producer.

Diplomacy Takes Center Stage

Trump has repeatedly warned Tehran that failure to reach a nuclear agreement or continued crackdowns on domestic protests could trigger U.S. intervention. Iran, meanwhile, has accused Western nations of fueling unrest inside the country.

Over the weekend, however, Trump struck a more conciliatory tone, saying Iran was actively engaging with U.S. officials. Reports of indirect communications through intermediaries further boosted confidence that both sides are seeking to de-escalate.

Energy analysts say this shift in rhetoric was enough to unwind much of last week’s speculative buying.

Andy Lipow, president of Lipow Oil Associates, noted that the market is now reacting to signs that diplomacy may prevail over confrontation.

“The talks are happening at the same time Iran is warning about regional consequences if it’s attacked, which could send oil prices sharply higher,” Lipow said. “That’s clearly an outcome the Trump administration would prefer to avoid.”

Political Pressure Adds to Oil Sensitivity

Geopolitics is not the only factor weighing on prices.

Marko Papic, macro and geopolitical strategist at BCA Research, said the U.S. administration’s sensitivity to rising fuel costs could act as a restraint on further escalation.

He pointed out that crude prices moving into the $70 to $80 per barrel range would likely translate into higher gasoline prices, a politically uncomfortable scenario as the U.S. heads toward midterm elections later this year.

Fuel costs have historically been a key concern for American voters, and any sharp increase could put additional pressure on policymakers to keep energy markets stable.

Extra Supply Quietly Enters the Market

At the same time, fresh supply is beginning to emerge, further dampening prices.

Venezuelan crude is gradually returning to global markets, much of it coming from offshore and onshore inventories rather than new production. These additional barrels are adding to available supply just as global output continues to exceed demand.

Industry data suggests that worldwide production remains several hundred thousand barrels per day above consumption, keeping inventories comfortable despite geopolitical risks.

Analysts also point to steady exports from major producers and resilient U.S. shale output as contributing factors that are helping cap any sustained rally.

OPEC+ Holds the Line on Production

Meanwhile, OPEC+ continues to manage output cautiously.

The oil-producing alliance confirmed over the weekend that it would keep production levels unchanged for March, extending its current three-month supply freeze. The decision reflects a balancing act between supporting prices and avoiding excessive tightening that could accelerate inflation or curb economic growth.

Lipow said that while Venezuelan barrels are adding pressure on prices, OPEC+ discipline is still providing a floor under the market.

“Additional Venezuelan oil is coming through inventory liquidations, but OPEC+ maintaining its current production levels continues to offer underlying support,” he said.

Markets Reprice Risk

For now, traders appear to be dialing back worst-case scenarios of a supply shock stemming from Middle East conflict.

With diplomatic channels reopening, extra barrels entering the system, and OPEC+ holding output steady, oil markets are recalibrating expectations after last week’s surge.

Still, analysts caution that volatility is likely to remain elevated, as any sudden shift in U.S.–Iran relations or disruptions in key shipping routes could quickly reignite price pressures.

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