Oil falls as Trump signals dialogue with Iran over nuclear programme

US West Texas Intermediate crude dropped $1.25 to $64.17 a barrel after gaining 3.4% to settle at its highest level since September 26 in the previous session.

Singapore: Oil prices slipped on Friday on signs the US may engage in dialogue with Iran ​over its nuclear programme, reducing concerns of supply disruptions from a US attack, though prices were on track for large monthly gains ‌as tensions have increased.

Brent crude futures fell $1.10 to $69.61 a barrel by 0707 GMT after rising ⁠3.4 per cent to close at its highest point ‌since July 31 on Thursday. The March contract expires later on Friday. The more active April contract slid $1.29 to $68.30.

US West Texas Intermediate crude dropped $1.25 to $64.17 a barrel after gaining 3.4 per cent to settle at its highest level since September 26 in the previous session.

Middle East tensions and oil prices have increased this week due to a US military buildup in the region. US President Donald Trump urged Iran on Wednesday to ​make a deal on nuclear weapons or face an attack but on Thursday said he was planning to speak to the country's leaders. Tehran responded to his earlier comments by saying it would strike back hard.

"Prices eased after last night's rally as the market reassessed geopolitical risks in the Middle East," said LSEG senior analyst Anh Pham, ‌adding neither a US ‌attack nor the closure of the crucial Strait of Hormuz waterway has actually materialized.

The Strait of Hormuz connects the Gulf to the Indian Ocean and is a key conduit for oil supplies ⁠from Saudi Arabia, Iraq, Kuwait, Qatar, the UAE and Iran.

Prices also slipped as the dollar rose on Friday, paring a weekly slide, after Trump said he would soon announce his nominee to head the Federal Reserve and on optimism that lawmakers in Washington would avoid a government shutdown.

A stronger greenback can limit demand from oil buyers paying ⁠in other currencies.

Still, both oil benchmarks are set to record their first monthly gains in ⁠six months amid the tensions between Iran and the US, with Brent up 14.5 per cent to notch its ‌biggest jump since January 2022. WTI is on track to rise 12 per cent in January, its biggest monthly gain since ‌July 2023.

The Trump administration is hosting senior defence and intelligence officials from Israel and Saudi Arabia for separate talks on Iran this week in Washington, according to two people familiar with the matter. US officials say Trump is reviewing his options but has not decided whether ‍to strike Iran.

"Given elevated inflation and this year's midterm elections, we do not anticipate protracted oil supply disruptions," JPMorgan analysts led by Natasha Kaneva said in a note.

"If military action does occur, we expect it to be targeted, avoiding Iran’s oil production and export infrastructure."

Citi expects the US and Israel to take restrained actions against Iran in the near-term, including oil tanker seizures; it cited a 70 per cent probability for this outcome.

Disruptions in Kazakhstan, Russia and Venezuela affected a combined 1.5 million barrels per day (bpd) of supply in January, JPMorgan analysts said, adding that the Arctic wave in the US is estimated to reduce crude and condensate output by 340,000 bpd this month.

On Wednesday, Kazakhstan said it was restarting the huge Tengiz ​oilfield in stages, aiming to reach full production ‌in a week after three unexplained electrical fires earlier this month impacted 7.2 million barrels of oil output.

Bad weather has hit Russian oil exports, while Venezuela was forced to cut production after US forces ousted President Nicolas Maduro early this month.