Oil prices are heading toward their first back-to-back weekly decline of 2026, signaling a shift in market psychology after months dominated by geopolitical risk premiums. Traders are recalibrating positions as the prospect of expanded OPEC+ supply collides with signs of diplomatic progress between Washington and Tehran, while broader market softness adds another layer of caution.

West Texas Intermediate is down roughly 1.2% for the week and traded little changed on Friday, reflecting a market that appears undecided about its next directional move. Brent benchmarks have shown similar hesitation, hovering near recent support levels. The pullback threatens to snap a steady run of gains that defined early 2026, when recurrent geopolitical tensions — particularly the U.S.-Iran standoff — buoyed futures.

OPEC+ Supply Signals Re-Emerge

Delegates within OPEC+ have indicated there may be room to resume output increases as early as April, arguing that fears of a supply glut may be overstated. While no formal decision has been made ahead of the March 1 meeting, the mere discussion has tempered bullish sentiment.

At a major energy conference in London this week, industry participants suggested that global supply could exceed demand in 2026, particularly in the Atlantic basin — a key price-setting region. If that imbalance materializes, inventories could build, weighing on forward curves and potentially narrowing backwardation structures that have supported prices.

However, not all supply signals are bearish. Sanctioned barrels and intermittent production disruptions in several countries have so far prevented a material inventory surge. This tension between theoretical oversupply and practical constraints is keeping crude in a relatively tight range.

Iran Talks and the Risk Premium Question

Geopolitics remains central to price formation. President Donald Trump indicated that negotiations with Iran over its nuclear program could extend for as long as a month. The signal of prolonged diplomacy has reduced the near-term probability of military escalation — and with it, some of the embedded geopolitical risk premium.

Earlier in the year, fears of supply disruptions tied to Iran provided consistent support for crude. The market now appears to be pricing in a lower likelihood of immediate confrontation. That shift has been enough to encourage short-term profit-taking, particularly among funds that built long positions during January’s rally.

Meanwhile, negotiations related to the war in Ukraine continue to influence European energy flows and global supply expectations, though their impact on oil pricing has recently been secondary to Middle East dynamics.

Macro Tailwinds Offer Partial Support

Limiting the downside, recent U.S. inflation data has been relatively tame, reinforcing expectations that the Federal Reserve could proceed with additional rate cuts. Lower borrowing costs typically support commodity demand through a weaker dollar and improved economic activity expectations.

Still, thinner trading conditions ahead of the U.S. Presidents’ Day holiday may exaggerate price swings, amplifying short-term volatility without necessarily signaling a fundamental shift.

Looking ahead, the oil market faces a delicate balance. If OPEC+ signals meaningful output increases while diplomatic channels with Iran remain open, crude could struggle to regain its early-year momentum. Conversely, any disruption to talks or unexpected supply shock could quickly restore bullish positioning. Investors will be watching March’s OPEC+ meeting and developments in Washington and Tehran as pivotal catalysts for the next directional move.