Oil prices retreated for the first time in three sessions after Iran confirmed it will hold talks with the United States on Friday, tempering fears of imminent military action against one of the world’s key oil producers. Brent crude slipped toward $68 a barrel, while West Texas Intermediate fell below $64, after both benchmarks had rallied nearly 5% over the previous two days on escalating geopolitical anxiety.

The confirmation came from Iranian Foreign Minister Abbas Araghchi, who said the negotiations would take place in Oman, offering clarity after days of speculation. The announcement reduced the immediate likelihood of supply disruptions tied to conflict, particularly involving Iran, a major member of OPEC. Still, markets remain far from relaxed, as the scope and substance of the talks remain highly uncertain.

Diplomacy Calms Markets, But Fragility Remains

While confirmation of talks eased headline risk, the underlying tension between Iran and the United States continues to cast a long shadow over energy markets. Differing expectations over the agenda, location, and outcomes of the negotiations raise doubts over whether meaningful progress can be achieved.

The Middle East accounts for roughly one-third of global crude supply, making any diplomatic thaw or breakdown highly consequential for oil pricing. Traders are acutely aware that even temporary optimism can reverse quickly if talks falter or rhetoric hardens, a dynamic that has defined energy markets repeatedly over the past decade.

Oversupply Versus Uncertainty

Beyond geopolitics, structural concerns are resurfacing. Oil prices rebounded earlier this year after a sharp decline in the second half of 2025, when signs of a global supply glut weighed heavily on sentiment. Those concerns have not disappeared. Inventories remain ample, and non-OPEC supply growth continues to challenge the cartel’s ability to manage the market.

At the same time, geopolitical uncertainty is acting as a counterweight. Shell CEO Wael Sawan acknowledged this balance in a recent interview, noting that while oversupply exists, it is offset by heightened geopolitical volatility. In effect, the market is trading not just barrels, but probabilities.

Derivatives Signal Persistent Anxiety

Even as futures prices softened, risk indicators in derivatives markets remain elevated. WTI call options are trading at their largest premium over puts since 2022, signaling continued demand for protection against sharp upside moves. This positioning suggests that traders are reluctant to fully price out supply-shock scenarios, despite the easing of immediate tensions.

Flows into major oil-linked exchange-traded products also highlight the cautious stance of investors, with one fund posting its largest inflow since 2020 earlier this week. Such activity reflects hedging behavior rather than outright bullish conviction, underscoring the fragile equilibrium in crude markets.

Broader Macro and Geopolitical Cross-Currents

Oil’s retreat also coincided with renewed volatility across commodities. Sharp declines in precious metals, particularly silver and gold, point to broader repositioning as investors reassess risk exposure amid shifting central-bank expectations and easing geopolitical headlines.

At the same time, developments in Eastern Europe remain a wild card. Ukraine peace discussions, complicated by continued attacks on energy infrastructure by Russia, add another layer of uncertainty to the global supply outlook, reinforcing the sense that oil markets remain hostage to geopolitical events.

Looking ahead, crude prices are likely to remain highly sensitive to headlines from Oman, as well as any signals from Washington or Tehran that talks are stalling or expanding in scope. Until greater clarity emerges, volatility, rather than direction, may remain the defining feature of the oil market.