Prices reverse course after diplomatic breakthrough
Oil slid Wednesday as Iran confirmed it will hold negotiations with the United States on Friday, taking some heat out of a market that had rallied sharply on fears of military conflict.
WTI crude dropped to $63.21 per barrel, shedding 1.93% after jumping 2% Tuesday when a US fighter jet shot down an Iranian drone near the USS Lincoln. Brent fell 1.99% to $67.47.
Iranian Foreign Minister Abbas Araghchi said discussions will begin at 10 a.m. Friday in Muscat, Oman. The announcement ended days of back-and-forth over whether talks would happen at all.
What the two sides want
Tehran wants to focus strictly on its nuclear program and the sanctions choking its economy. Washington has a longer list. The Trump administration is pushing to include ballistic missiles, Iran's support for armed groups across the Middle East, and human rights.
That gap could derail talks before they start. Traders remain wary.
"Markets may be over-interpreting these signals," one analyst told CNBC. "This could be a tactical pause before something bigger."
The Hormuz factor
About a fifth of global oil production passes through the Strait of Hormuz each day. Any disruption there would scramble supplies worldwide. That geography explains why tensions between Washington and Tehran move crude prices so quickly.
Just yesterday, Iranian gunboats challenged a US-military fuel tanker in the strait. The week before, live-fire drills raised alarms.
Analysts estimate the current geopolitical premium at $7 to $8 per barrel. If Friday's talks go well, some of that could evaporate. If they collapse, prices could spike again.
What traders are watching
The White House said President Trump wants diplomacy "first." That word choice matters. It signals room for escalation if negotiations fail.
WTI traded between $62.69 and $64.67 on Wednesday, showing the market's uncertainty. Brent moved in a similar range, from $66.93 to $68.94.
Friday's talks in Muscat will set the tone for the rest of February. Oil traders aren't placing big bets until they see which way the wind blows.