Oil eases as supply risk premium comes into focus

Brent crude traded around $71.72 a barrel and U.S. West Texas Intermediate hovered near $66.44 early Monday, after a volatile stretch that saw prices rally last week on geopolitical fears before attention turned back to diplomacy and trade policy headlines.

The latest pullback came as the market looked ahead to another round of U.S.-Iran talks later this week, a key catalyst for whether sanctions could be eased and additional barrels might return to global flows. At the same time, investors assessed a new wave of tariff uncertainty after a U.S. Supreme Court decision struck down most of President Donald Trump’s earlier tariff measures, prompting the administration to move toward a temporary 15% import tariff—the maximum allowed—while U.S. Customs and Border Protection said it would suspend tariff collections starting Tuesday.

That combination has kept oil trading with a noticeable geopolitical “risk premium” even as physical market signals have been mixed. Analysts at Morgan Stanley said recent price strength looked driven more by geopolitics than by an immediate shortage, pointing to softer prompt spreads and weaker physical differentials even as futures climbed.

Market participants have been toggling between two competing narratives: the near-term risk of disruptions tied to Iran and the broader expectation that supply growth could outpace demand in 2026. Goldman Sachs, in a note published Monday, said it expects a 2026 oil surplus of about 2.3 million barrels per day under its base assumptions, even as it raised its 2026 price forecasts and cited lower OECD inventories and underperformance in some producing countries.

The Iran channel remains central because it can cut both ways for prices. In recent sessions, crude had climbed more than 5% on fears of escalation, lifting Brent close to a six-month high, before retracing as traders shifted to the probability that negotiations could reduce tensions and eventually loosen sanctions.

Earlier this month and into mid-February, prices showed how quickly sentiment can pivot on diplomacy headlines. Brent fell to about $67.42 and WTI to roughly $62.33 on Feb. 17 as optimism grew that U.S.-Iran talks were making progress, with Iran’s foreign minister describing a preliminary understanding while cautioning that a final deal was not imminent.

Beyond Iran, traders are also tracking the possibility that a broader easing of sanctions—whether tied to Iran or Russia—could add supply and pressure prices. Goldman flagged downside risks if sanctions on Iran or Russia were eased, estimating potential price impacts under those scenarios even as it expects OPEC+ to gradually increase production starting in the second quarter of 2026.

The tariff storyline has added a second layer of uncertainty because it feeds directly into the macro demand outlook. Oil often trades as a pro-cyclical asset, and abrupt changes in trade policy can shift expectations for growth, industrial activity, and inflation. The Supreme Court ruling and the subsequent tariff response have contributed to risk-off positioning across markets at times, with oil caught between geopolitics-driven buying and growth-sensitive selling.

For now, the market’s day-to-day focus is on timing: the next round of nuclear talks, the durability of the tariff regime after the court decision, and whether the physical market begins to validate futures pricing. If negotiations point to sanction relief, traders will likely reassess how much of a risk premium is embedded in Brent and WTI. If talks stall or tensions rise again, the market could quickly reprice toward disruption risk, especially given how sensitive positioning has been to headline-driven swings this month.