In the early hours of Thursday, February 5, 2026, oil prices turned lower after a strong rally the previous session. The trigger was news that the United States and Iran agreed to hold talks in Muscat, Oman, on Friday, February 6, easing fears that a military escalation could disrupt supply from the Middle East.

How much did oil fall?

• Brent slipped about 1.4% to around $68.47 per barrel.

• WTI fell about 1.4% to around $64.23 per barrel.

Notably, prices had risen roughly 3% on Wednesday (February 4) after media reports suggested the talks might collapse. Later, officials from both sides said the meeting would still take place, prompting the market to give back part of the risk-driven gains.

Why can “talks are happening” be enough to push prices down?

Oil prices don’t only reflect today’s supply and demand they also price in future risk. When U.S.–Iran tensions intensify, markets typically add a geopolitical risk premium (prices rise because traders fear supply disruptions).

Once the talks were confirmed, the perceived probability of worst-case scenarios declined. That means the risk premium shrank, and prices moved lower.

However, tensions have not disappeared:

• The two sides reportedly still differ on the scope of the agenda. Iran has signaled openness to discussing its nuclear program (including uranium enrichment), while the U.S. wants to broaden talks to include ballistic missiles, Iran’s support for proxy groups, and other issues.

• Markets remain sensitive to any hardline statements or sudden security developments that could reignite fears quickly.

The Strait of Hormuz: the “chokepoint” that makes oil hypersensitive

If you want the simplest reason why diplomacy can move oil fast, remember one word: Hormuz.

A large share of global oil flows through the Strait of Hormuz, a narrow maritime chokepoint. Any perceived threat to shipping routes there can immediately lift risk premiums even if supply has not yet been physically disrupted.

In plain terms, Hormuz is the market’s “bottleneck.” When the bottleneck looks safer, prices can ease. When it looks threatened, prices can spike.

Why didn’t oil drop more? U.S. inventories are falling

Beyond geopolitics, U.S. inventory data provided some support and helped limit the downside.

For the week ending January 30, 2026, the U.S. Energy Information Administration (EIA) reported:

• Crude oil inventories fell by 3.5 million barrels to 420.3 million barrels

• Gasoline inventories rose by 0.7 million barrels

• Distillate inventories (diesel/heating oil) dropped by 5.6 million barrels

This suggests short-term fundamentals especially on the distillate side still offer support, so even as the market trims geopolitical risk, prices may not necessarily slide sharply.

This pullback shows markets are removing part of the geopolitical risk premium after confirmation of U.S.–Iran talks in Oman. But because the region’s supply and shipping routes especially Hormuz are structurally critical, any breakdown in diplomacy or sudden escalation could bring volatility back fast.

Source: Reuters